ManagementBanking: RBI to the rescue
The RBI clarification, issued on December 1, 2009, has allowed banks to include technical or prudential write-offs for calculating provision coverage for non-performing assets (NPAs) - mandated to be at a minimum of 70% by September 10. This has triggered a relief rally in bank stocks with reasonably higher NPAs or low provisioning which were underperforming the BSE Bankex (see Prodigal returns).
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Prodigal returns
Private Banks
Return Over Bankex
Bank Name
CAR
(%) Gross
NPA
(%) Net NPA
1 day
3 months
Dhanalaksh.Bank
14.93
1.73
0.86
4.19
-14.01
ING Vysya Bank
14.48
2.57
1.78
3.87
2.69
Axis Bank
16.47
1.21
0.45
2.73
-8.62
Kotak Mah. Bank
17.72
4.33
2.62
2.48
-9.64
Dev.Credit Bank
14.85
11.24
4.67
1.94
-32.00
Federal Bank
17.91
2.99
0.54
1.9
-16.21
South Ind.Bank
16.26
1.61
0.43
1.77
-3.04
ICICI Bank
17.69
4.69
2.36
1.42
-5.79
IndusInd Bank
13.51
1.5
0.98
1.24
0.81
(CAR = Capital Adequacy Ratio; NPA = Non-Performing Assets)
(Source:- Capitaline)
A further positive for PSU banks in the list is the government’s proposed recapitalisation of banks where government shareholding is below 55%, with funds sourced from the World Bank. Several of these were quoting below book value based on the combination of an expected hit to next year profits as RBI provisioning norms came into play and an inability to effectively utilize a credit cycle growth phase because of low capital.
PSU Banks
Return Over Bankex
Bank Name
CAR
(%) Gross NPA
(%) Net NPA
(%) of shares held by GOI
1 day
3 months
Vijaya Bank
12.04
2.91
1.46
53.87
4.35
5.13
Dena Bank
11.59
1.98
1.24
51.19
3.37
34.42
Canara Bank
14.46
1.6
1.16
73.17
3.35
26.81
Syndicate Bank
12.02
2.55
0.91
66.47
1.96
-5.42
IDBI Bank
11.9
1.75
1.19
52.67
1.53
-0.94
(CAR = Capital Adequacy Ratio; NPA = Non-Performing Assets)
Source Capitaline
Credit upswing
The Indian economy is primed to see a new credit cycle after bottoming out at 8-8.5% y-o-y growth levels in November 09 as per a Morgan Stanley report on the Indian economy. It estimates credit growth will be 16% by March 10 and 22% by end 2010.
On credit quality, the sense is that impaired assets are at a trough now although NPA accretion will continue for the next two quarters. A revival in industrial production and access to risk capital through revived capital markets will help repair balance sheets and reduce further impairments of assets for banks, according to Morgan Stanley.