Bank stocks still not long term portfolio allocation option: Satish Ramanathan

In a chat with ET NOW, Satish Ramanathan, market analyst shares his views on the banking pack.

ET Now: Regarding the banking pack, are we close to bottoming of the cycle of lower NPAs?

Satish Ramanathan: The NPA issues, we have to understand that NPAs are always underreported when the crisis hits and the shock comes much later than we anticipate and therefore even if the NPL is reported to be 3.5 crore or 4.5 crore, the fact is that banks do restructure assets.

There is a bit of ever greening that takes place. So actual NPL probably is already 5.5 crore or 6 crore in the system and we should not be too unaware of the fact that banks do tend to restructure debt to make it look good and therefore I do not think we are close to the bottom in terms of the NPL cycle.

But in terms of bank stock prices, they tend to actually start moving up three to six months before the peak bad news actually hits the market. I do not think we are still there. We should be waiting for two more quarters before we start looking at bank stocks as a longer term portfolio allocation.