INDIAN BANKING INDUSTRY IN 2010 = MANY WINNERS = THEIR FUTURE PROSPECTS

INDIAN BANKING INDUSTRY

AND

ANNUAL BANKING INDUSTRY SURVEYS

This Blog has covered Banking Industry extensively throughout the year 2010.

Banking Industry is one Industry which invariably grows well when the Indian economy grows well. It has several advantages over most other Industries.

It is not dependent on external factors like dollar, US economy, European economy and so on.

It is not also dependent on foreign technology, FDI or foreign know-how much. On the other hand, there is much that foreign Banks can learn from Indian Banking Industry and its success.

There are many growth factors for Banking Industry in India.

The demand for Banking services in India is very huge. Geographically, almost  half of India is yet to be covered by Banking services.  Overall, about 75% of population in urban and to rural population are yet to avail Banking services.

Most of the banks are yet to provide the full range of Banking services generally available in the developed countries, to their customers.

This gives huge opportunity to Banks in India to expand their products and services and their Geographical spread every year. We do find many Banks expanding their business and profits almost by 20% every year. Expansion by over 100 branches every year has become almost a norm for most Banks.

AUTOMATION IN BANKING INDUSTRY :

The automation process in Indian Banking Industry is proceeding very efficiently and very fast. The main contributors to this are our OWN IT Biggies – Infy, TCS etc, who have developed the best banking softwares of the world. Compared to the cost and efficiency of getting the Best Banking softwares and their  implementation in other countries, by the banks abroad, our Banks are getting the Best, at a fraction of the cost and with greater efficiently.

FINANCIAL INCLUSION :

Financial inclusion process in India is moving ahead at a reasonable pace and in a cost effective manner under the supervision of RBI. Even private Banks are not lagging behind in the process. There is a realization among all stakeholders that financial inclusion at this moment, may or may not be very profitable – but will not be loss making. In the future, this financial inclusion is the one which will prove to be a goldmine, as the country moves on its growth path.

Financial services must move to the villages and to the disadvantaged. And they are moving. Banks are on the move all over India. Small Banks are growing into mid-size and Mid-size Banks are growing into Big Banks – very, very fast now. What did not happen for several decades is happening in a span of 3-4 years now. Most Banks are in the Pink of health.

BEST REGULATOR

India provides huge advantages to its Banks in expanding their services.

The regulator in RBI is one of the most enlightened and efficient regulators in the world. When Banking Industry in USA and Europe were under severe stress, our Banking Industry was flourishing well.

NPA PROBLEM :

There is usually an apprehension among all stakeholders about NPA Problem. It is true that even Big banks get into a loop with NPA Problem some times. Like Bank Of India did. Like IOB did. But, in most other cases, all such problems last either for just one quarter or for very few quarters. Thereafter it is Growth as usual. Even in case of BOI and IOB, the same will hold true after they come out of their NPA problem.

NPA problem usually arises in a Bank due to inadequate examination of the debtor’s capabilities and business prospects. Some times, a Bank depends heavily on a particular Business segment – which later takes a hit. These are inherent Business problems. A 1% Net NPA level does not hurt much in respect of profitability. Many Indian Banks are around this level. Some are less than one tenth of this level.

RBI prescription for provisioning for NPAs at 70% is very healthy and most Banks have already attained it. Many Banks are provisioning much beyond that now. Thus, NPA should not be that much of a worrying point for investors and other stakeholders now.

CAPITAL ADEQUACY :

Capital adequacy norms at Basel I and II levels is now no more a problem in India. Most banks are achieving these norms easily. They are also prepared for Basel III. Banks in India are more conscious of these requirements than even the regulator.

SHORT TERM DEPOSITS VS LONG TERM LOANS:

Banks in India are concentrating more on CASA deposits – and some Banks are at around 52% level in CASA DEPOSITS. CASA DEPOSITS are purely short term deposits. Even the Fixed deposits in Banks are of 2-3 years duration. Banks are not encouraging long term deposits which involve slightly higher cost, in recent past.

But, most lending is for long term loans of 15-20 years duration like Housing and infrastructure sectors. A huge mismatch can develop if this trend continues, in the sources and uses of deposits.

Banks and RBI are realizing this mismatch and seem to be taking steps for encouraging long term deposits to an adequate level.

NET INTEREST MARGINS :

Net Interest Margins of Indian Banks have crossed the 3% level in many cases. This is quite healthy.

Other Banks are also striving hard to achieve these levels.

While the interest differential has been the mainstay of Bank profitability, Banks are now discovering many other new avenues to augment their revenues and profits.

OTHER PRODUCTS & SERVICES :

Banks are developing many profitable products – like insurance, investment services, capital market services and so on. And, these are catching on in a Big way. Banks are looking at both organic and inorganic growth – but essentially organic growth. Small Banks are as successful and ambitious as Big Banks.

Some are more successful and consistent than others.

This Blog had examined quite a few of this SUCCESSFUL category :

(1)      Axis bank

(2)      HDFC Bank

(3)      Punjab national Bank

(4)      Bank of Baroda

(5)      Canara Bank

(6)      Andhra Bank

(7)      Indian Bank

(8)      Dena Bank

(9)      YES BANK

(10)  INDUSIND BANK

(11)  SOUTH INDIAN BANK…and so on (Many others)

All these are great Banks in their own category and are growing very profitably and very fast. They have good managements.

These are also finding place in many awards categories in recent Banking Industry surveys conducted by prestigious financial Magazines for the year 2010.

In the BW-PwC survey conduced for 2010,

In the LARGE BANK category : HDFC Bank is adjudged as the BEST BANK, while AXIS BANK is the Fastest growing bank. Axis Bank is of course ranked as No.2 Best Bank, with PNB and BOB ranked at No.3 and 4. Among Fastest growing large Banks, IDBI Bank, HDFC Bank, OBC, PNB figure at rank.2,3,4 and 5.

In the MID-SIZE category, Andhra Bank is the Best Mid-size Bank, while YES BANK is the Fastest growing Mid-size bank. Yes Bank is again the No.2 in Best Mid-size category, with SBH, Federal Bank and IndusInd at rank no.3,4 and 5 in this category. In the fastest growing Mid-size category, IndusInd is at rank.2, while SBH, UBI and KMB are at rank 3,4,5.

In the SMALL BANK Category, South Indian Bank and Karur Vysya Bank are both ranked as the No.1.Best Small Banks, while DBS Bank (a foreign Bank) is the fastest growing small Bank. Tamilnadu Mercantile Bank, Deautche Bank and DBS are ranked No.3,4,5 in the best Small Bank category. Among the Fastest growing small Banks, we find Lakshmi vilas Bank at No.2 and City Union Bank, Bank of Nova scotia, Tamilnadu Mercantile Bank at rank.,3,4,5.

Another Prestigious Magazine, Business Today has also conducted Banking Industry survey (with KPMG) with approximately the same results :

Axis Bank is the overall winner and also the most consistent performer in the Large Bank category. Yes Bank is adjudged as the overall winner in the Mid-size category.

Andhra Bank, has pole-vaulted 15 places to No. 6 in the list of best Banks. It has achieved growth without any compromise in asset quality.PNB has moved to No.2 while HDFC Bank has moved to No.3.

BOB, Allahabad bank and Indian Bank etc have also performed well in the survey.

This Blog is in total agreement with these conclusions of both the surveys and congratulates all the winners.

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PUBLIC SECTOR BANKs = STAR PERFORMERS = ANDHRA BANK = DENA BANK = INDIAN BANK = CANARA BANK = BANK OF BARODA = 2011 LIKELY TO BE MUCH BETTER

PSU BANKS

HOW THEY STAND

BEFORE Q3 RESULTS

One of the Sectors which is grossly underpriced in Indian stock markets despite consistently improving performances is the  sector of PUBLIC SECTOR BANKS.

There are many stars and budding stars in this sector. Their main attraction is their consistency and dependability in all seasons, which is very uncommon in most other sectors.

At the rate at which the Indian economy is growing, the PSB sector is one SURE-SHOT SECTOR, which is bound to outgrow most other sectors consistently by a comfortable margin.

Now, the 4th quarter of FY 10-11 is due to start in January,2011. The results of the 3^rd qtr also are due in January,2011. Some CRYSTAL GAZING before the new year into the stars of this sector is therefore useful for Investors.

Readers can watch out for some star performances from this sector. Based on past consistency and progress, the following PSBs need special attention. Some of the key performance indicators are presented for each Bank, for readers to judge their favourite candidates.

ANDHRA BANK

Total Income (Crs) : 2132; 2073; 1977; 1827; 1791;

Provisions (Crs):    120; 52: 223; 96; 58;

Basic EPS (In Rs. On Face Value of Rs.10) : 6.25; 6.61; 4.95; 5.68; 5.65;

% of Gross/Net NPA :  .49; .30; .17; .17; .16;

52 WEEK High/Low /CMP: 190; 94; 151;

Comments :

Andhra Bank has been scaling new heights every quarter. Its total income has increased by 341 cr or 19.03% in last 5 qtrs from 1791 cr to 2132 cr. Provisions are well under control and % of Gross/Net NPA is quite low compared to other Banks at 0.49.This consistently LOW Ratio, coupled with around 20% Income growth is a good indication for its excellent profitability in future.

As we can see, from its 52 week low of 98, it had scaled up by more than 100% to 190, but is now available at 151 – based on its current performance. In the next 4 quarters it is bound to more than improve on its last 4 Qtrs performance. It has set  a huge business target for 2011 and will achieve the same easily.

Its web site shows that Andhra Bank has been winning Best bank awards in many categories from prestigious Journals / Institutions consistently. One can expect it to scale up its performance much further in coming quarters.

Current PE Ratio is hardly 6, which leaves huge scope for price appreciation even in next 3 months.

One can expect Handsome gains from Andhra Bank in 2011.

DENA BANK

Total Income (In Crs) : 1340;1222; 1238; 1149;1088;

Provisions (In Crs):  73;  43;  82; 29; 1.5;

Basic EPS :  5.60;   4.84;   4.78;  4.69;  4.35;

% of Gross/Net NPA  : 1.49;  1.49;  1.21;  1.19;  1.24;

52 W H/L/CMP  : 151;  71;  115;

Comments :

Like Andhra Bank, Dena Bank has also been scaling new heights every quarter. Its total income has increased by 252 cr or 18.8% in last 5 qtrs from 1088 cr to 1340 cr. The rate of Growth of its Income at 18.8% is a sure indication of its increasing profitability in future. Provisions are well under control. But, % of Gross/Net NPA is around 1.5 compared to just 0.5 for Andhra Bank.

As we can see, from its 52 week low of 71, it had scaled up by more than 100% to 151, but is now available at 115 – based on its current performance. In the next 4 quarters Dena Bank is also bound to more than improve on its last 4 Qtrs performance. It is expected to get huge funds infusion from Government, which will enable it to have more loanable funds directly and also enable it to raise further funds from the market based on the same.Its business growth in next 4 qtrs is therefore bound to be impressive.

Dena Bank has been consistently improving its performance in last 5 qtrs. Current PE Ratio is hardly 5.13, which leaves huge scope for price appreciation even in next 3 months.

One can expect Handsome gains from Dena Bank in 2011.

INDIAN BANK

Total Income (In Crs) : 2559;  2477;  2318;  2308;  2174;

Provisions : 133; 344;  214; 32; 29;

Basic EPS : 9.40;    8.29        9.27        10.00      8.38

% of Gross/Net NPA : .73; .76; .23; .16; .18;

52 W H/L/CMP : 316;  155; 259

Comments :

INDIAN Bank is another Bank scaling new heights every quarter. Its total income has increased by 385 cr or 17.73% in last 5 qtrs from 2174 cr to 2559 cr. Provisions are well under control and % of Gross/Net NPA is quite low compared to other Banks at 0.73.

As we can see, from its 52 week low of 155, it had scaled up by more than 100% to 316, but is now available at 259 – based on its current performance. In the next 4 quarters it is bound to more than improve on its last 4 Qtrs performance. It has set  a huge business target for 2011 and will achieve the same easily.

Current PE Ratio is hardly 6.89, which leaves huge scope for price appreciation even in next 3 months.

One can expect Handsome gains from Indian Bank in 2011.

CANARA BANK

Total Income (In Crs) :  6077; 5895; 5507; 5469; 5602;

Provisions (In Crs) :   158;  220;  727;  167;      309;

Basic EPS : 24.58;  24.72; 12.27; 25.67; 22.21;

% of Gross/Net NPA :  1.06: 1.00; 1.06; 1.34; 1.16;

52 W H/L/CMP : 844;  360;  654;

Comments :

Canara Bank is one of the larger Banks in size and increasing in size further very fast. In performance also, it has been scaling new heights every quarter. Its total income has increased by 475 cr or 8.48% in last 5 qtrs from 5602 cr to 6077 cr. Provisions are well under control and have drastically come down from previous qtrs. The % of Gross/Net NPA is 1.06 which is moderate.

As we can see, from its 52 week low of 360, it had scaled up by more than 100% to 844, but is now available at 654 – based on its current performance. In the next 4 quarters it is bound to more than improve on its last 4 Qtrs performance.

One can expect it to scale up its performance much further in coming quarters. It has set its targets for FY11 quite impressively, based on its achievements in H1.

       The Bank aims to reach an aggregate business figure of `5 lakh crore, ( From Rs.425258 crore  at Sep 2010) comprising total deposits of `285000 crore and advances of `215000 crore. 

       The Bank has plans to open over 200 new branches during H2.

So, Growth in last 2Qtrs can be expected to be much higher. Current PE Ratio is hardly 6.65, which leaves huge scope for price appreciation even in next 3 months.

One can expect Handsome gains from Canara Bank in 2011

BANK OF BARODA :

Total Income (In Crs) : 5840;  5344;   5121; 4837;  4731;

Provisions (Crs) : 185;  251; 377; 242; 116;

Basic EPS: 27.98; 23.59; 24.88; 22.85; 17.41;

% of Gross/Net NPA : .38;  .39; .34;    .31; .27;

52 W H/L/CMP : 1052; 495; 895;

Comments :

Bank Of Baroda is another Bank scaling new heights every quarter. Its total income has increased by Rs.1109 cr or 23.44% in last 5 Qtrs from 4731 cr to 5840 cr. The rate of Income Growth has been the highest among the Banks covered here.

Provisions are well under control and % of Gross/Net NPA is one of the lowest compared to other Banks at 0.38.

As we can see, from its 52 week low of 495, it had scaled up by more than 100% to 1052, but is now available at 895 – based on its current performance. In the next 4 quarters it is bound to more than improve on its last 4 Qtrs performance. It has set  a huge business target for 2011 and will achieve the same easily.

Current PE Ratio is hardly 7.996, which leaves huge scope for price appreciation even in next 3 months – considering the huge progress, BOB is recording QOQ.

One can expect Handsome gains from BOB in 2011.

SUMMARY

All the above Stars are growing at impressive Rates – which is much higher than many other sectors / companies. Some well known stars like PNB and State Bank are omitted here.

There are also other good performers like Vijaya Bank, which are likely to improve their performance in coming qtrs, as can be seen from their targets.

One can expect a 100% improvement in their Market Prices  easily - even if only the 2010 maximum prices are reached. But, the investors can hope for much better too – based on the improved performances in 2011.

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COMPANY NEWS : =TCS = JSW INFRA = TVS MOTORS = MAHINDRA & MAHINDRA = NTPC = INFOSYS = BAJAJ AUTO = HINDALCO = PUNJAB NATIONAL BANK = ASHOK LEYLAND = SINTEX IND = RELIANCE COMMUNICATIONS

COMPANY NEWS

Some of the latest, useful news of following prominent companies are briefed below. For details, readers need to refer to detailed news reports in dailies / NSE sites etc:

COMPANIES COVERED :

(1)          TCS (2) JSW INFRA (3) TVS MOTORS (4) MAHINDRA & MAHINDRA (5) NTPC (6) INFOSYS (7) BAJAJ AUTO (8) HINDALCO (9) PUNJAB NATIONAL BANK (10) ASHOK LEYLAND (11) SINTEX INDUSTRIES (12) RELIANCE COMMUNICATIONS  

14.12.2010 : TATA CONSULTANCY SERVICES :

TCS will implement TCS BaNCS Core Banking solutions at Deutsche Bank as its new core banking platform in over 30 countries – by replacing several solutions now in place, with one modern, transaction-safe and cost-efficient platform.

“This is a significant step of strengthening our global transaction banking (GTB) platform worldwide. It is further proof of our firm commitment to deliver best-in-class services to our clients. We expect the new platform to deliver significant improvements that will benefit our clients,” said Deutsche Bank.

N Chandrasekaran , CEO, TCS, says that - this is the largest core banking deal in 2010 for TCS and to his knowledge, this is the largest core banking deal for the industry anywhere for this year. It has already gone live in Abu Dhabi.

The deal between the implementation and the transformation and ongoing support will be for 10 years.

14.12.2010 : JSW INFRA

JSW Infrastructure will sell a 10 per cent stake in the company to the US-based Eton Park for about Rs 560 crore.

The proceeds will be used for expansion of JSW's ports business, Said JSW Infra.

JSW Infra currently operates two ports -- Jaigarh in Maharashtra where it has a 50 year licence on build, own, operate, share and transfer basis.

14 12 2010 : TVS MOTORS:

TVS Motors plans to enhance its manufacturing capacity from 12,000 to 20,000 units at its facility at Hosur in Tamil Nadu for meeting "huge" demand for its scooterette Wego. Tamil Nadu is the largest market for the company, which plans to launch Wego in Tamil Nadu market by January or February 2011. Currently, Wego is not available in Tamil Nadu and some eastern regions in the country.

In November, TVS posted 27 per cent growth in two-wheelers' sale.

With the launch of TVS WEGO, TVS Motor becomes the only company with a wide range of scooters in the market.

14 12 2010 : MAHINDRA & MAHINDRA :

British Telecom (BT) today completed the sale of 5.5 per cent stake in Indian IT firm Tech Mahindra to the latter's parent group Mahindra & Mahindra for Rs 451 crore.

BT, which is struggling with a huge pension deficit, had 30 per cent stake in Tech Mahindra prior to this deal.

Post the sale, it will come down to 24.5 per cent, M&M's stake will increase to 48.5 from 43 per cent.

BT's remaining 24.5 per cent stake in Tech Mahindra, could fetch the telco a whooping Rs 2,065.94 crore valued at today's share price of Rs 673.20.

In the November 26 statement, M&M had said it will give a waiver to its rights to buy further stake in the software firm.

14 12 2010 :NTPC

(1)      NTPC has signed a power purchase agreement (PPA) with West Bengal government for setting up a thermal unit at Katwa (Bardhaman district).

From the plant, 50 per cent of power will be allocated to the state government, 15 per cent to the ministry of power and 35 per cent to all other constituents in the region.

Total investment for the 2x800 Mw Katwa project will be Rs 9,600 crore, roughly around Rs 6 crore per Mw. Discussions are also going on for a greenfield (new) project at Santaldih (Purulia district).

NTPC has lined up 17 projects for next year and would be able to add another 5,500 Mw of capacity by the end of 2011-12.

By the end of the 11th Five-Year Plan (March 2012), NTPC target is to become a 40,000-Mw company.

(2)     NTPC is in talks with Jharkhand Government for picking up 76 per cent stake in Patratu and Tenughat thermal power projects in Jharkhand, for a combine power generation capacity of 2,640 MW. They have coal linkages and are currently running at very low efficiency level. The combined cost of the projects is about Rs 16,000 crore.

NTPC currently generates over 32,000 MW and would augment the capacity to 75,000 MW by 2017.

(3)      11 12 2010 : NTPC has signed a power purchase agreement with Punjab State Power Corporation Ltd (PSPCL) for 2,640 MW coal-based thermal power project at Gidderbaha for Rs 15,000 crore. The plant consists of four units of 660 MW each, which would be entirely funded by NTPC. The 2,640 MW Gidderbaha power plant will be the biggest thermal power project in Punjab.

14 12 2010 INFOSYS :

INFOSYS is aiming to spend USD 500 million or around 10% of its revenues  - on acquisitions.

14 12 2010 : BAJAJ AUTO :

Bajaj Auto will raise prices across its range of motorcycles by up to Rs 1,000 starting January 2011, the company said on Tuesday.

The continued rising cost of raw material inputs is the main cause for this increase.

Bajaj Auto had earlier reported 19 per cent jump in motorcycle sales at 2,65,036 units in November. The company had sold 2,42,390 units in November last year.

In October this year, the company had reported its highest ever motorcycle sales in a month at 3,29,776 units.

13.12.2010 : HINDALCO :

Hindalco will receive a dividend (return of capital) of Rs 7,650 crore from its subsidiary Novelis which recently announced plans to raise $4 billion (18,000 crore) through debt. Hindalco acquired Novelis in 2007 for $6 billion (Rs 27,000 crore).

As part of the refinancing, Novelis intends to enter into a new $1.5-billion (Rs 6,750 crore) secured term loan credit facility and replace its existing $800 million asset-based loan (ABL) facility with a new $800 million ABL facility.

The money received from Novelis will help Hindalco to fund its expansion and retire some of its high-cost debt.

Hindalco had debt of Rs 23,000 crore as on June 30 and plans to spend Rs 40,000 crore on its various expansion projects in India. The D : E ratio of Hindalco's expansion is 7:3, which means the company requires Rs 28,000 crore of debt, said an analyst.

13 12 2010 : PUNJAB NATIONAL BANK :

Punjab National Bank has picked up majority stake of 63.64 per cent in Kazakhstan-based JSC Dana Bank for about Rs 104 crore.

This acquisition would allow PNB to penetrate in CIS (Commonwealth of Independent States) countries.

PNB is present in eight countries and is planning to open few more offices overseas, including Shanghai. It is also looking at setting up a subsidiary in Vancouver, Canada.

This would be PNB's third overseas JV after Everest Bank Ltd, Nepal and Druk PNB Bank Ltd in Bhutan.

13 12 2010 : ASHOK LEYLAND :

Ashok Leyland has received an over Rs 125 crore order from VRL Logistics to supply 600 vehicles, deliveries of which will start in a month -  500 units of 3123 multi-axle vehicle and 100 units of 12-metre bus.

13 12 2010 : SINTEX INDUSTRIES:

Sintex Industries today said that its subsidiary Sintex Infra Projects has acquired 30 per cent in Durha Constructions (DCPL).

As part of the agreement with the owners of DCPL, Sintex can acquire majority stake in the latter by the end of March 2011, it said.

13 12 2010 : RELIANCE COMMUNICATIONS:

(1)      R COM is starting 3G mobile services in four cities and would cover all its 13 zones by the end of March next year. RCom is targeting a national footprint of 3G services through associations with other "like minded, quality 3G licensees" in the remaining nine telecoms zones during the course of next year.

(2)      Reliance Communications today launched its high-speed wireless Internet service in seven new Tamil Nadu and Puducherry towns. India's fastest wireless Internet service in Tamil Nadu and Puducherry is an important milestone for Reliance and will act as a catalyst in the government's effort to drive broadband penetration in the country, said R Com. The company aims to offer Netconnect Plus services in 400 towns in Tamil Nadu by January 15, 2011, compared to 143 big and small towns at present, R Com said.

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