Despite degrowth, banks see improvement in NIMs: R Sreesankar, Prabhudas Lilladher

In a chat with ET Now, R Sreesankar, Head Institutional Equities, Prabhudas Lilladher, says within the PSU banking space, SBI still continues to be one of the better positioned banks.

Edited excerpts:


I do not know if you heard of Maharashtra Seamless, but he sounded as confident as I have ever heard him. The management of Welspun Corp sounded okay, Jindal Saw has not had a bad quarter. Is it a space that is making a re-emergence they had a splendid 2014-2013 on the previous cycle is this restarting again the pipes business?

I do not want to comment on it because I have not looked at that detail but my take on these things are, it is a capex led performance for a lot of these companies. You invest in lot in pipelines and the pipe companies have got a better outlook. So it all depends upon what is the capex in laying of these pipelines? That is the way I look at it. There will be periods where there a lot of capex, you will see orders coming in and after that it is like a lull. So it looks like good times are going to be there. I have not looked at these companies in detail. So I do not want to comment beyond this.

What has been the biggest earnings surprise on the positive side for you? Where you would have reinitiated your buy call to your clients or asked your clients to invest fresh money?

In general, this post demonetisation quarter, when we had done a quarterly preview, a lot of numbers were reduced downwards expecting serious headwinds -- be it in the banks, be it FMCG companies and so on.

This is probably the first quarter after so many quarters where we have seen the actual results reported by the banks and many other companies, which were better than expected. You would have seen volume de-growth by 12% by Asian Paints or something like that, so we have some of these volumes decline in many of the cases but in general it has been better.

Now take for example, even the banks, banks everybody has seen a large amount of growth in terms of deposits and the credit growth has been anaemic in the last quarter, the credit growth for the entire system was at what, year-on-year 4% or something which was at 10% in September. So a significant de-growth has actually happened. Despite that, what we are not seeing is many of the banks have actually seen a slight improvement in NIMs etc. There is a lot of positives also one needs to look into the entire factor. I would think in general it has been relatively better given that we had just had a demonetisation which impacted their business for a better part of last quarter .

SBI has come out, BoB is coming up next. Are you happy with what SBI did? What is the house call on PSU banks right now?

We continue to have SBI as one of our top picks. We believe that within the PSU banking space, SBI still continues to be one of the better positioned banks be it in terms of a deficit growth, be it in terms of credit growth or be it in terms of even provision coverage ratios as well as the asset quality.

I do not think there are any kind of changes in the thought process. The results were slightly better than what we had estimated for the quarter as well. So probably more details will come in after the call line results in expectations.

Bank of Baroda again you are not seeing significant additions to the gross NPAs over the last three quarters it has been more or less steady and if that continues it will be interesting to note that what kind of numbers will start to come out from Bank of Baroda.

The key, whether it is Bank of Baroda or for SBI for the entire PSU banking space, is we have seen a significant addition to NPAs for lot of the PSU banks as well in Q3 and Q4 of FY16. Those accounts which were declared as NPAs post AQR would have completed 12 months so it will move from substandard to the doubtful category which means that provisioning also will have to change.

The aging of NPAs will result in an increase in provisions so to me the crucial factor for all these kind of companies bank through going forward is how the asset quality or how has the slippages, the assets which slipped into NPAs during this period what it has done and what is aging, are we seeing any kind of a recoveries in those things so those are all the crucial numbers which will actually determine the provisioning going forward for FY18.