Siddharth Teli, MD & Co-Hd, Instl Research at Religare Capital Markets told CNBC-TV18, "Our framework with overall banking sector but more particularly in PSUs is that it is very difficult to predict asset quality across banks. So, capitalisation levels become a key theme from hereon. So, even if we have a new government and it is a start of a new cycle, banks which are better capitalised, will standout far better than some of those who don’t have capital."
"The issue with PSU banks is that in the last three or four years capital has been consumed at a very high pace and some of the banks are now with core tier one equity ratios even below 7 percent. So, our framework has been look at those banks where apart from asset quality you have very good capitalisation levels and that is where Bank of Baroda (BoB) and State Bank of India (SBI) stand out. So, based on our numbers we were just trying to see that if we were to look at 8 percent core tier one over a period of time then some of the lower capitalised banks could require dilutions immediately to the extent of 50-60 percent and then going forward there could be further rounds of dilution as well," he said.
"Bank of Baroda clearly stands out over there. It is the best capitalised bank, still trades at 0.7 times book, it might look at a premium to some of the other banks but if you were to adjust for capitalisation levels then my sense is that we would still stick with Bank of Baroda as one of our favoured picks in PSU space."
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