Public sector banks lost market cap in '13 » Business Standard

Public sector banks lost market cap in '13

The stock market gave a thumbs-down to public sector bank (PSB) stocks in 2013. Their market capitalisation fell 27 per cent to Rs 276, 997 crore at year-end, clear displeasure at poor performance.

At the start of 2014, the outlook isn't much better. PSBs account for a little over 70 per cent of loans and have been hit substantially by a long spell of economic slowdown. The situation is expected to stay that way for at least the first half of 2014, said executives.

The economic slowdown for a little over two years, stretched working capital cycles and higher interest rates have pushed many companies across sizes to the brink of default. The extent of rise in non-performing assets (NPAs) has been unprecedented. According to Reserve Bank data, gross NPAs of commercial banks ballooned from Rs 94,121 crore (2.36 per cent of the total) in March 2011 to Rs 236,245 crore (4.22 per cent) by the end of September 2013. There is also pressure from restructured advances, with a high tendency to slip into default.

Revathi Kasture, head of research, CARE Rating, said the sharp dip in market capitalisation of PSBs was not surprising. Their performance on all parameters had gone down, such as in profitability and asset quality.

Slower credit growth leading to weakening of income, pressure on margins and higher provisioning on account of weakening asset quality impacted the profitability.

Private sector banks, by contrast, were able to maintain profitability and asset quality.

According to CARE's estimates the overall gross NPA ratio for the banks under study would be around 4.5 per cent by March 31, with a higher proportion coming from PSBs, whose gross NPA ratio was estimated to rise to around five per cent. Further, banks will have to provide more for restructured assets, in line with the new RBI norms. These factors would exert downward pressure on margins and are likely to impact profits for FY14 by 25-30 per cent.

Angel broking in its preview of third quarter said higher short-term funding cost is likely to result in margin pressures for those banks which have not taken corresponding base rate hikes. Moreover, the un-provided losses (mark-to-market) as of 2QFY2014 end would also affect profitability for some PSU banks.

The new private banks are expected to deliver earnings growth of 17.1%, while PSBs may register bottom-line de-growth of 9%.

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Rajesh Kumar Kathpalia ¤ SMC Global
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Email Id: rajesh.ipo@smcindiaonline.com