Comments
Banking stocks which took a sharp knock in the beginning of 2013-14, bounced back from September 2013, impelled by expectations of a revival in economic growth and possible reforms by the stable new government in core sectors.
The CNX bank index went up 60 per cent since September. The euphoria was led by the beaten down public sector bank stocks — the CNX PSU Bank Index rallying 86 per cent in this period. But the performance of public sector banks, does not offer much to cheer — even in the latest March quarter results.
The Indian banking sector has been grappling with three years of continuous economic slowdown. The loan growth slowed down to 13-14 per cent for the second year in a row from 17-20 per cent growth in earlier years. High inflation and a weak rupee didn’t leave much headroom for monetary easing by the RBI either, which only aggravated the sector’s problems.
But private banks have proved quite resilient in this difficult phase, thanks to the focus on core operations, healthy retail growth and lower loan delinquencies.
Leading private banks witnessed 18-26 per cent growth in earnings in 2013-14. But for public sector banks, slowing economy has only worsened their bad loan troubles. Bad loans and restructured loan book now exceeds 11 per cent of loans. Five sectors — infrastructure, iron & steel, textiles, aviation and mining — contribute over half of banks’ stressed advances. The government will have to take quick decisive policy actions to kick-start investment activity in these sectors.
This also brings us to the larger issue of capital need for State-owned banks. According to RBI estimates, PSU banks require close to ₹1,40,000 crore of capital over the next five years. With the government’s share in public sector banks varying between 55 to 82 per cent, they will need to bring in close to ₹ 90,000 crore.
Even if recovery does happen, it will be modest and gradual. After the recent rally, banks will have to deliver on expectations to sustain their valuations.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.