Positive on banking sector: Karvy Stock Broking

Rakesh Kumar, Analyst, Karvy Stock Broking

I am looking at your banking sector recommendations and it seems you are constructive on pretty much all the names except Indian Overseas Bank on which you have a sell and you think SBI is just going to be a market performer. Now why are you constructive on the banking sector? Is it largely on the back of credit growth expectations or do you think that the nonperforming asset cycle has also now decisively turned?

As you rightly said, we are positive on all the banks overall. The one thing is that for this year 21-24% credit growth would not be difficult, may be in the first half there could be some hiccups but in the second half, things will be better. Second thing on the margin side, there should be a margin improvement that will be coming from the asset side unlike what happened in the previous year from the liability side improvement and we saw the margin inching up but there will be asset adding to the margin in this year. Apart from that on the NPA side in this year, it will keep on increasing and the most important thing we have to keep into mind is that restructured asset totally for some banks, it is may be close to 4-6% and the gross NPA is just close to 2% at most, so any slippage in the higher amount coming from the restructured asset would increase your total gross NPA very much and we are already taking into consideration that around 5-7% additional slippage from the restructured asset would come in this year as well across the banks, so if we see the NPA cycle, may be by the end of first half, it should be peaking most to most and thereafter things would improve, so this is what we have a call on one of the NPA cycle on the credit growth, on the margin side.