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The
country cousin counters are on a roll. Once off the investment radar,
PSU banks have outperformed private banks over the past year. And
now that bank stocks overall have taken a dip on account of RBI's
no-rate-cut announcement, this is something of a 'buy' opportunity
again.
Broad Outlook
Analysts and fund managers all remain largely
gung-ho on banking stocks per se. The logic: this sector offers
a vehicle to participate in India's economic revival by proxy. "We
expect good times for the banking sector through 2004," says
Paras Adenwala, Fund Manager (Equities), Birla Mutual Fund, "not
only in retail, but corporate business too. Spreads from lending
activities would improve substantially. All frontline PSU banks
as well as select private banks will benefit immensely from this
phenomenon."
Most banks have gained from their gilt portfolios,
and have used these gains to make provisions for their non-performing
assets (NPAs). Oriental Bank of Commerce (OBC), for example, now
has zero NPAs, while others have made drastic cuts in preparation
for the 90-day NPA classification norm (due next year). All this
has prompted Standard & Poor's to revise its outlook on the
Indian banking system to 'stable' from 'negative'. Legislative changes
have also helped the cause of default-crimping in the recent past.
The Season's Picks
Which are the bank stocks that look attractive?
Despite their mammoth appreciation over the last 12 months, PSU
banks still trade at a valuation discount to their private counterparts.
And of these, State Bank of India (SBI) is a good bet. With its
13,629 branches and 1,900 ATMs, it bestrides Indian banking like
a colossus. Its computerisation drive will enhance efficiency, while
retail efforts shore up this high-margin business. The bank is expected
to consolidate all its subsidiaries too, granting it additional
market power.
The other PSU bank that merits attention is
Corporation Bank. Its lack of high NPAs meant it could not gain
much from the asset reconstruction legislation, and was ignored
by momentum investors. Yet, it remains a good performer with a strong
balance sheet.
An investor with an appetite for higher volatility
could also look at OBC, the one with no NPAs. And it is well managed,
boasting one of the lowest expense-to-income ratios in the industry.
An equity buy-back scheme may be on the cards too.
Amongst private banks, try HDFC Bank. Since
inception in 1995, the bank has taken a lead in deploying technology
to its advantage. It now has 3.6 million retail (its strong point)
accounts in 135 cities, and 235 branches across the country. "We
are positive on HDFC Bank," says Kanan Shah, Banking Analyst,
Networth Securities, "on the back of significant advances'
growth and negligible NPAs. The bank is fundamentally solid."
Some IPO Action
UCO Bank, Vijaya Bank and Indian Overseas Bank
have already tapped the primary market. Expect IPOs from Bank of
Maharashtra, Punjab & Sind Bank and Indian Bank next. Banking
is likely to keep investors glued to their screens.
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