The Hindu Business Line : Hopes on financial results lift bank stocks

Kolkata April 26 Bank stocks are moving apace on the back of expectations of positive quarterly performance, the sentiment propped by the fact that the central bank has not tinkered with key rates in the Credit Policy announced on April 24.

A number of bank stocks, including the super large-cap State Bank of India, ICICI Bank, HDFC Bank and Punjab National Bank, have been advancing lately, a trend that has effectively reversed the negative drift that had become evident in recent times.

The factors leading to the change mostly stem from the latest bout of financial numbers, marked by growing balance sheet sizes, a general improvement in profitability and changing business profiles leading to higher fee-based income.

Mr Shailendra Bhandari, MD & CEO, Centurion Bank of Punjab, felt that there is a clear case for well-managed banks to turn in good performance, especially if they are able to add to their conventional operations by capitalising on opportunities emerging in areas like wealth management and securities broking.

Says Mr P.K. Gupta, CMD of United Bank of India, the banking sector is set for the next big leap, thanks to the policies being followed by the government. This is expected to take place despite obvious constraints faced by the sectors, he added.

Bank stocks, after a week-long run, today ended on a flattish note, a notable exception being Canara Bank, which dipped 1.4 per cent to close at Rs 223.50 on NSE. The Credit Policy, marked by no hike in key rates, is also being referred to by investment circles, which feel that the absence of any increase is probably due to previous changes in CRR and repo rate. RBI, which has taken a view on slower growth compared to fiscal 2007, may be gauging their impact.

In the backdrop of the apex bank's policy, the possible downsides are also being cited. "Though RBI has put a pause on any rate hike in this policy, it has continued to highlight inflation as key concern. It has raised concern over oil prices rising again", a note issued by broking firm Prabhudas Liladhar has mentioned.

Credit growth

RBI, which sees deposit growth at Rs 4,900 billion (translating to 18.9 per cent year-on-year growth in fiscal 2008), also sees credit growth coming down to 24-25 per cent in 2008 compared to 29.8 per cent in 2007 against its earlier target of bringing down the credit growth to 20 per cent, the note has further stated.

Market sources feel that even a 20-22 per cent loan growth will imply a healthy growth. Profitability will remain if banks, with appropriate PLR kikes, are able to protect their margins. However, there will be near term uncertainties, it is expected.

Incidentally, rating agency Crisil has reiterated its stance on factoring the possibility of government support into ratings of banks & FIs. This is against the background of heightened investor interest and debate on the issue in global financial markets in recent months.

The rater, which feels that the government's record has been mixed, has specifically mentioned IFCI, where the authorities did not provide timely support to prevent default, and Indian Bank, where they decided on timely re-capitalisation.

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