Bank Stocks Outlook: PSU banks down next wk on margin pressure

[K.Karthik Raja]

Bank Stocks Outlook: PSU banks down next wk on margin pressure

CHENNAI - Bank shares are seen down next week as Jan-Mar earnings
are expected to be under pressure.
Some of the banks, mainly state-run, have lowered the benchmark
prime lending rate in the last one month. The move is likely to put
pressure on banks' profitability.
Banks are cutting deposit rates but not lending rates. This will
put
pressure on their margins in the short run. However, going ahead,
banks are not likely to renew the high-cost deposits which will ease
the margin pressure
Cost of term deposits are 500-600 bps higher than current and
savings accounts and rising proportion of term deposits will increase
margin pressure for state-run banks.
There is some more pain still left. The positive side is downside
risk
is limited," said a banking analyst
Banks may have to further cut their home loan rates as Finance
Minister P. Chidambaram said Thursday there is scope for banks to
lower rates on home loan up to 2 mln rupees.
The finance minister had earlier said "I wish the rates come
down",
prompting banks to cut rates in February.
If the pricing power of banks is regulated, then it creates a
negative
sentiment for investors.
Bank stocks were hammered this week with most of the counters
registering a fall of around 20% compared with last week's closing
price.
.
LACK OF CLARITY
To add to the worries, clarity is yet to emerge on the 600-bln-
rupee
farm loan waiver announced in the budget.
While the minister has proposed to waive all dues of small and
marginal Farmers, others will get 25% waiver if going for one-time
settlement.
All loans overdue as of Dec 31, and unpaid until Feb 29, will come
under the scheme. Scheduled commercial banks account for 58%
of total agricultural lending, while their share in total agricultural
non-performing loans is just 17%.
Co-operative banks account for 33% of agricultural loans and 76%
of agricultural NPLs.Scheduled commercial banks will write off
100 bln rupees, while the balance would be written off by co-operative
banks and regional rural banks.
.
POSITIVE ON PRIVATE BANKS
Market sentiment seems to be positive for private sector banks,
despite the country's largest private sector lender ICICI Bank
expected to take a hit of about $470 mln in Jan-Mar due to the
subprime crisis in the U.S.
Minister of State for Finance Pawan Kumar Bansal Tuesday said
ICICI Bank's overseas operations had reported a mark-to-market loss of
$264.34 mln on credit derivatives and investments as on Jan 31.
We continue to prefer private banks and maintain our negative
stance on government banks given that their fourth-quarter earnings
growth is likely to disappoint due to increasing margin pressures, the
absence of treasury gains and higher loan-loss provisioning

Today's closing prices of shares of leading banks in rupees,
compared with a week ago, on National Stock Exchange:
.
Mar 7 Feb 29 % change
.
Andhra Bank 80.60 89.15 -9.59
Bank of Baroda 299.05 377.25 -20.73
Bank of India 271.10 347.40 -21.96
Canara Bank 227.90 275.65 -17.32
Corporation Bank 271.30 338.90 -19.95
HDFC Bank 1,282.25 1,474.30 -13.03
ICICI Bank 893.40 1,099.80 -18.77
Oriental Bank of Commerce 206.60 249.85 -17.31
Kotak Mahindra Bank 627.85 815.40 -23.00
Punjab National Bank 498.60 578.85 -13.86
State Bank of India 1,839.75 2,113.80 -12.96
Union Bank of India 141.75 188.00 -24.60
Sensex 15,975.52 17,349.07 -7.92
Nifty 4,771.60 5,110.75 -6.64
CNX Bank Index 7,268.15 8,685.10 -16.31
.

K.Karthik Raja
www.kences1.blogspot.com