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Summary of
Contents
SHAREKHAN SPECIAL
Banking Q2FY2007 earnings
review
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After two relatively dull quarters, the latest
quarterly results truly justified the run-up in the banking stock
prices. The exuberance in the banking sector is based on the core
fundamentals and improved visibility in the earnings of the
sector, a glimpse of which we have seen during Q2FY2007.
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The net interest income (NII) witnessed a
handsome growth, backed by a strong advances growth and the
relatively stable net interest margins (NIMs). Higher growth in
the fee income helped a commendable growth in the core operating
profits.
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With the benchmark yields down almost 50 basis
points from the quarter ended June 30, 2006, instead of a
mark-to-market provisions charge that was seen in the previous
couple of quarters, we saw most banks writing back excess
provisions. This kept the overall provisions down and helped the
robust growth in profits.
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Based on the improved visibility in the
earnings for the banking sector, we have revised the earnings for
certain banks. We feel that with the busy season ahead the banking
sector is poised to see better times. Our top picks among the
public sector banks remain Bank of India, Canara Bank and Punjab
National Bank while in the private banking space UTI Bank is our
preferred choice.
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