Valuation OF Public Sector Banks Coming Down Due To Bad Balance Sheet

26 MAR, 2013, 04.00AM IST, DHEERAJ TIWARI,ET BUREAU 

Public sector banks to clean books before raising funds to tackle higher NPA issue--Economic Times 

NEW DELHI: Public sector banks will have to clean up their books before they can tap public funds as the finance ministry is toughening its stance on their high non-performing assets.

The ministry fears that high NPAs will result in poor valuation of the PSBs, many of which are gearing to raise equity in the new financial year to meet the higher capital requirements under the Basel III norms that are set to kick in from 2013-14.

"If they go to markets with such books there is a probability that their share prices will take a beating. Strong financials will be a must before approval of any public issue plans," a finance ministry official told ET.

State-run banks' gross non-performing assets (NPAs) as a percentage of deposits have risen to 4.18% by December 2012 compared to 3.22% a year ago. Worried over the rise in NPAs, the finance ministry has already called for details of recovery of bad loans and write-offs in the past six years. "We have sought explanation from banks if the write-off amount is more than the recovery made," the official said.

The finance ministry has also hauled up heads of Bank of Baroda, Central Bank of India, Punjab and Sind Bank and United Bank of India, where there has been a steady increase in NPAs since December 2011.

"The government will not allow a fire sale. The government is committed to fully capitalise banks," the official said. It has set aside Rs 14,000 crore towards bank capitalisation in 2013-14 in the budget.

The finance ministry will prepare a road map so that the public issues of banks do not clash with the divestment issues in other state-run companies. "We are already in talk with banks. There is ample appetite in the market for offers of PSU banks. We will chalk out a strategy so that there are no clashes with offers of major companies such a Coal India  and IOC" the official said.

The government aims to garner Rs 40,000 crore through disinvestment in 2013-14. State Bank of India's rights issue could be the first casualty of these rules. "We have been in discussion with the government since 2011 for a rights issue. Our initial demand was Rs 20,000 crore, but now we may raise Rs 10,000 crore or less," said a senior official with SBIB adding that the bank will take a final call after the first quarter of 2013-14.

Indian Overseas Bank (IOB) already has a board approval for a rights issue of 20 crore equity shares. Kolkata-based United Bank of India also has a board approval for a rights issue of Rs 300 crore, which it plans to bring in early next fiscal.

UCO Bank also plans to come out with a rights issue. "It is for the government to decide as it is a majority shareholder. A lot will depend on the market situation as well," said an executive director with a public sector bank.

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/public-sector-banks-to-clean-books-before-raising-funds-to-tackle-higher-npa-issue/articleshow/19205785.cms

25 MAR, 2013, 06.53PM IST, ECONOMICTIMES.COM 

PSU banks look attractive near current valuations: Analysts

MUMBAI: The rate sensitive banking sector has been under intense pressure recently following a sting operation alleging a money laundering scam and a hawkish commentary by the Reserve Bank of India. The S&P BSE Bankex has fallen 5.15 per cent in the past one week and 7.50 per cent in the last one month.

Investors with long-term perspective can look for buying opportunities in some of the banking counters near current and lower levels as valuations look attractive, say analysts. 

"If an investor has the patience and the temperament to ride out the volatility and look beyond a year or so, may be a couple of years or so, then this is a good time to start gradually increasing exposure to equity and if the market were to drift lower then enough liquidity should be there to even perhaps average or buy at lower levels," said Dipan Mehta, Member BSE and NSE 

He is of the view that investors should include banks or some of the niche NBFCs in their portfolio. Once inflation does come off and the RBI reduces rates, then investors can expect further reduction in interest rates and that could act as a turning point. 

According to Sonam Udasi, Head of Research, IDBI Capital, there is an interest growing in some of the banking names and they (clients) are looking for some fall in banking names to come back and look at those constructively. 

The breather for PSU banks will come when GDP growth will be seen coming back and expectation that the top line growth or disbursements will be quite good in FY14. 

"Some of these banks have unnecessarily taken the beating on the chin because our expectations were too high in terms of interest rate cuts and things did not kind of move accordingly. The reduction in interest rates, in my view, is going to be a process which is going to be at least a few quarters away from now. It is not something which is like an event that would happen overnight," said Prakash Diwan, Chief Portfolio Strategist, Prakash Diwan's Wealth Circle, to ET Now. 

"Banks like SBI, BoB and OBC from the PSU pack are distinctly attractive from a valuation perspective," he added. 

Analysts are of the view that some of the PSU banks are available at very good prices. 

"Some of the PSU banking stocks are ridiculously attractive at these price points. We are currently advising our clients to partially shift from private to PSU banks. We like PNB as a large cap in the PSU banks as well as Corporation Bank which is currently available at a very good valuation. ICICI Bankis our top pick from large cap private banks and Karur Vysya Bank in the midcap space," said Devang Mehta, VP & Head Equities Sales, Anand Rathi Securities. 

http://economictimes.indiatimes.com/markets/analysis/psu-banks-look-attractive-near-current-valuations-analysts/articleshow/19194783.cms