PSU banks' asset quality still a concern, advise caution: Dipen Shah

In a chat with ET Now, Dipen Shah, Senior VP-PCG Research, Kotak Securities shares his views on the banking pack and PSU bank, especially. Excerpts:

ET Now: What is your sense on how the entire banking pack is likely to pan out, in the run up to the RBI policy?

Dipen Shah: Overall, we do have a slightly cautious view on the banking sector. Within that, we prefer private sector banks like ICICI, but as far as the PSU segment is concerned, we have a slightly cautious view and that is largely because of the fact that we are not seeing any significant improvement in the asset quality of these banks.

In fact, in the last quarter, we had heard a couple of managements saying that it could take a few more quarters before we can see a perceptible improvement in asset quality.

For PSU banks, there is an added disadvantage of costs, which keep on rising. That is largely because of wage increases that have set in. Also, we have been seeing several banks raise money with a view to meet the Basel norms, or with a view to improve their capital adequacy and with most of the PSU banks currently quoting at below book value, any further dilution at these levels could in fact deflate the book values.

These are some of the concerns which we have on the PSU banks. While valuations for these banks are pretty reasonable, we believe that because of these concerns and because of an increase in interest rates, which now seems to be almost inevitable, there could be better prices for us to accumulate PSU banks.