>BANKING SECTOR: Preview of Q2FY12 Results

Sector Outlook

The sector has been witnessing a healthy business growth rate till now. Even though interest rates have increased, credit growth has been at a healthy 19.5%, while bank deposits rose 17.38% as on 23rd Sept, 2011.

􀂾 The credit growth has been on account of drawdown from earlier sanctions. With investment in infrastructure slowing down and firms looking abroad for raising money due to lower cost, healthy credit growth in India will see some pressure in the near term.

􀂾 According to data released by the Reserve Bank of India (RBI), bank credit rose 3.9% in the April‐September period, lower than the 5.6% growth in the same period of the previous financial year.

􀂾 RBI has raised key policy rates by 150 basis points since April to rein in inflation and anchor inflationary expectations. In June, majority of the banks increased their lending rates & a few days back, some banks have increased their deposit rates. However, we expect margin to remain stable or slightly down from Q1FY12 levels, given the fact the wholesale deposit rates have come down significantly from June levels.

􀂾 We may see some earning pressure on PSU banks due to system recognition of NPA’s.

􀂾 NPA’s for the sector as a whole may rise from Q1FY12 levels in Q2FY12 results. However, we expect better recovery & upgradations in the sector during the second half of the fiscal and therefore NPA’s to improve in the second half of the fiscal for the sector.

􀂾 Currently, most of thebanks are available at attractive P/BV. We have listed some of them below with our rationale for the same.

To read the full report: BANKING SECTOR