Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
PSU Banks: Eyeing credit buoyancy - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 21, 2001

    PSU Banks: Eyeing credit buoyancy

    Despite weakening economy, public sector banks (PSBs) managed to report a double digit growth both in earnings and operating income for the September quarter. We have covered 5 top public sector banks: State Bank of India, Bank of Baroda, Bank of India, Oriental Bank of Commerce and Corporation Bank for our sector study.

    (Rs m) 2QFY01 2QFY02 Change
    Interest Income 101,377 115,990 14.4%
    Other Income 13,158 17,195 30.7%
    Interest Expenditure 68,749 81,127 18.0%
    Operating Profit 32,628 34,863 6.8%
    Operating Profit Margin (%) 32.2% 30.1%  
    Other Expenditure 26,516 26,049 -1.8%
    Provision for VRS - 1,599  
    Profit before Tax 19,270 24,410 26.7%
    Provisions & Contingencies 5,484 8,797 60.4%
    Tax 4,211 5,049 19.9%
    Profit after Tax/(Loss) 9,576 10,564 10.3%
    Net profit margin (%) 9.4% 9.1%  
    No. of Shares (eoy) 1,772 1,772  
    Diluted Earnings per share* 21.6 23.8  
    P/E (at current price)   3.6  

    Declining interest rates pressurized the sector's interest margins, which fell by over 200 basis points. Nevertheless, reduction in cost to income ratio and a sharp rise in other income negated the impact of lower interest margins. Credit offtake for the banking sector slowed down to 13% in 1HFY02 compared to over 18% in the corresponding period of the previous year. In the first 7 months of the year non food credit offtake was only Rs 221 bn compared with Rs 355 bn in the comparable previous period. As a result, most of the banks concentrated on boosting fee based income, which is considered to be comparatively less risky and a high margin revenue stream. Consequently, other income to total income ratio of the sector increased to 13% from 12% in 2QFY01.

    Right sizing efforts of the sector was reflected from lower cost to income ratio which was reduced to 53% in 2QFY02 from 58% in the comparable previous quarter. The ratio is expected to come down further to the level of about 50% by the year end and is likely to remain on the lower side in the coming years on the back of saving in employee cost. Apart from this, implementation of the latest technology would help in saving transaction costs of banks.

    Although public sector banks in general are lagging behind in terms of adoption to the latest banking technology, the road map for the complete implementation of IT plans is ready. It might take longer to implement these plans considering the large branch network and government's interference in the decision making. However, once the infrastructure is put in place, the business has the immense potential to grow considering their size.

    The sector witnessed about 27% rise in earnings before provisions which was commendable on the larger size and a downturn in industrial activity. However, over 60% rise in provisions for non-performing assets (NPAs), trimmed the bottomline growth of the sector. A rise in the figure could be due to increase in provision coverage by banks. Also, a slowdown in the commodity sector, which is one of the largest contributor to the banks' NPA could have inflated the provisioning amount.

    The sector currently trades at a P/E of 3.6x and Price/Book value ratio of 0.7x 2QFY02 annualised earnings. Public sector banks lower valuations are the result of less proactive management (being government), large NPAs and difference in new service offerings compared to private sector banks.



    Equitymaster requests your view! Post a comment on "PSU Banks: Eyeing credit buoyancy". Click here!


    More Views on News

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    The Pied Pipers of 'Buy High, Sell Higher' (The 5 Minute Wrapup)

    Jul 14, 2017

    What should you make of Ola drivers turning day traders and Radio Jockeys giving opinion on the Sensex?

    SBI: Merger Pushes up Bad Loans (Quarterly Results Update - Detailed)

    May 23, 2017

    State Bank of India (SBI) ended FY17 on a healthy note but concerns on bad loans from associate banks remain.

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)



    Compare Company With Charts