Axis Bank, PNB and few PSU banks are good buy for long-term investors

Since March 09 the benchmark Nifty index of the NSE has lifted by 78% hence the bank shares have moved up by higher margins, but not of all the banks.

After analyzing the stock market current position the Axis Bank, Punjab National Bank, Bank of Baroda and Bank of India are still in a very good position and a good buy for long-term investors in case growth and historical assessment are taken into account.

Since 2003 over a dozen times there have been crucial turn up or down in the bull market. ETIG evaluated the assessments of banks at these points as market dynamics often change with every considerable gain or fall. Banks’ growth line is also taken into consideration at these points as growth determines valuations.

For instance take the case of ICICI Bank. On five important dates from March 9, 2005 to July 26, 2007 banks stock traded at price to earnings (P/E) multiple of between 15 and 30. This was the only way when the market headed upwards. At this time the the growth in earnings ranged from 20-30%.

Now the bank stock is trading at a P/E of 23 and profits have declined by 10% in FY 2009. Therefore the interesting outcome of this is: although the stock is trading at pretty much the same valuation as it was in those “good old days” but the wave has changed now and it has been most affected due to the slowdown in the economy, which means that it is overrated at current prices.

For many other banks, although the valuations are still low, but their growth too has been affected. Applying the same standard as of ICICI Bank, it has been observed that Indian Overseas Bank (IOB) had a P/E multiple of between 7 and 9 at the five decisive points between March 9, 2005 and July 26, 2007 though its profit growth was in the range of 20-30%.

At present the bank’s P/E is 3.6, but net profit growth is just 10% in FY 2009, due to which banks growth is very slow. As compared to growth in earnings the valuations have come down. Therefore, it should not be interpreted as a cheap stock as the fall in growth demands a decline in valuation. Similar case is case with Allahabad Bank, Oriental Bank of Commerce and Karnataka Bank.

There are also some bank stocks which appear to be underestimated. From March ‘05 to July’ 07, Axis Bank did business at a P/E of 20-25 when net profit growth was 20-50 %. Currently the stock is trading at a P/E of 14, with net profit growth of 69% in FY 2009. The conclusion is that stock markets have not been giving it the best it deserves to show the faster rate of growth.

Even a few public sector banks seem to have intrinsic value. Punjab National Bank (PNB) did business at a P/E of 10-13 when its growth was 10-30 % between March 9, 2005 and July 26, 2007. At present, the stock trades at a P/E of 6.3. However, its net profit has grown by 51% in FY 2009. Estimation has come down but the growth has gone up, making it an even cheaper stock.

Bank of Baroda and Bank of India in the same way as of PNB, also appears to be persuading buys as their current estimations have not taken into account their faster pace of growth. In case it would have been the secular Bull Run the prices might have gone up even more sharply as the market discounts fundamentals much more easily.

Among other banks, Indian Bank and Corporation Bank are also good buys.

While HDFC Bank’s valuations have remained in the range of 25-30 but it has gained a historic growth of 30%-40 %. At present its P/E is at 29 and profit growth was 41% in FY 2009 which means that the stock is as attractive as it was. The important thing for investors is that due to such stability often stock becomes a market performer. Therefore, it is improbable that HDFC Bank will make break through in the market.

PNB sees scope for cutting lending and deposit rates

On Tuesday Punjab National Bank chairman & MD K C Chakrabarty indicated that there is a scope for the cut in both lending and deposit rates. The rates can be reduced by 50-100 basis points. He added later in the day bank's asset and liabilities committee is going to hold a meeting for reviewing the rates. Speaking on the sidelines of a CII event in Delhi he added, "There is always scope for rate cuts."

Recently RBI in its annual monetary policy for 2009-10 release had cut both reverse repo rate and repo rate by 25 basis points to 3.25% and 4.75% respectively, with a view to increase economic growth.

Dr Chakraborty also added that in the current fiscal year more recruitment will be done and also has an aim to increase its customer base. He said, "We will recruit around 1,000 people and aim at adding one crore additional customers this year". The bank is also looking for a growth of 18-20% growth in deposits this fiscal.

PNB starts overseas operations in Hong Kong

Punjab National Bank (PNB) a public sector bank Chairman and Managing Director K C Chakrabarty told that it has established its overseas operations with the opening of a new branch in Hong Kong.

He added that bank international operations have not been much affected by the current economic scenario moreover bank is introducing new products to show confidence in the Indian banking system.

Chakrabarty informed the bank has recently opened a second branch at Kowloon, Hong Kong. In addition to this bank have representative offices at Shanghai, Almaty, Dubai and Norway and a subsidiary in London.

He told the bank total business has shown growth of Rs 3,50,000 crore.

Giving details of the banks performance in Rajasthan, he told the total business in the stated has crossed Rs 13,800 crore.

PNB launched the global credit card on commercial level

Punjab National Bank (PNB) is the second largest public sector has added one more credit card to its segment. Bank has launched global credit cards with a view to expand its product range. Two types of cards has been introduced in this category.

PNB Chairman K C Chakrabarty in its speech, during the commercial launch of the card said, "To start with we are launching two varieties of credit cards – Global Gold and Global Classic, which will meet the needs of its customers and will cater to the requirement of different income groups."

He said in November bank has done the soft launch of the cards but now it has launched the cards at commercial level therefore cards will be available across 1,200 branches of the bank across the country. He added in the beginning the card will be offered to existing customers of the bank.

Bank has tied-up with VISA as a payment gateway, thus the card will be accepted in over 29 million merchant establishments and a million ATMs across the worldwide. The card is photo credit card contains a host of features like free credit period of up to 50 days, no annual fee and attractive reward points.

In addition PNB also reported about the completion of 100% core banking implementation at all its 4,604 branches and extension counters. He notified that with the core banking it would be possible to meet the challenges of the financial sector and the centralization of the banking operations.

PNB announce cut in lending rate from Feb 1

Punjab National Bank country's second largest public sector lender has announced a cut in benchmark lending rate by 50 basis points to 11.50 per cent effective February 1. With this cut millions of home loan and auto loan aspirants will get respite.

During the announcement of the bank’s third quarter result PNB Chairman and Managing Director K C Chakrabarty told reporters, "We have decided to cut Prime Lending Rate (PLR) by 50 basis points beginning next month."

He informed bank has taken decision to cut interest rates on home, car, education as well as personal loans by up to 50 basis points. The new cut will be applicable from February 1.

He added after the cut the fixed rate housing loan would range from 9.25 per cent to 11 per cent in accordance to tenors and amounts.

He pointed out likewise the revised floating rate housing loans would range from 9 per cent to 10.25 per cent according to tenors and amounts.

He informed that the new revised interest rates on floating housing loan rate will be applicable both for existing and new accounts.

Chakrabarty remarked deposit rates will be reduced in between 25 to 100 basis points across various maturities effective next month.

He said, as a result after this reduction, the peak retail deposit rate will be reduced from 8.50 per cent in the time bucket of one year to less than 3 years to 8 per cent for one year to less than 5 years.

PNB to launch credit cards in Jan, expect 28-29% loan growth

Punjab National Bank (PNB), state-owned bank informed that it is expecting a healthy 28-29 per cent loan growth in the current financial year in the view of strong demand and spot its bad loans under 'manageable levels' in the months ahead.

PNB's Chairman and Managing Director, K C Chakrabarty told reporters "We have seen a good demand for loans and it (the credit growth) should be in the range of 28-29 per cent for the fiscal (2008-09)."

The bank is also considering of launching its credit-card business sometime in January and is believe to have signed agreements with Visa to avail the technology platform for the business, Chakrabarty informed.

As on December 19 PNB has an advance-base of 1.37 lakh-crore and a deposit-base of around 1.87 lakh-crore. Currently, its net non-performing assets (NPA) positioned at below 0.5 per cent and gross NPAs around 2.5 per cent, he added.

He said the bank is certain to maintain its NPAs under manageable levels although some slippages are expected in its risky asset portfolios in the latter half of next year.

"We do not expect any major increase in our bad loans from any specific portfolios... NPAs are not sector specific and depend upon the abilility of the customer in repaying the loan... It (NPA) is under controllable limits," Chakrabarty said.

He said on a year-on-year basis, PNB has registered a 29.5 per cent growth in deposits while its advances have grown by around 34 per cent as on December 19.

He added a healthy business growth in various segments is considered to help the bank to maintain a net interest margin of 3.4-3.5 per cent in the current fiscal.

Banks plan to further cut lending rates in December

People who are looking forward to purchase a car or home there is good news for them as public sector banks will be further cutting the lending rates in these two segments. During December public sector are planning for the second round of cut in the benchmark lending rates by up to 50 basis points.

Some of the banks have already started reducing the deposit rates as more liquidity has been instilled by the Reserve Bank. Thus, according to a senior banker the scope for cutting lending rates has increased and this will spur demand.

Banks have started assessing asset liability situation in the light of the cuts in deposit rate coming into effect from next week, he said.

Another senior banker informed that in December further cut in Benchmark Prime Lending Rate (BPLR) in between 25-50 basis points by various banks is possible.

Earlier several public sector banks had reduced their BPLR by 75 basis points on the request made by the Finance Minister P Chidambaram earlier in the month.

Chidambaram had added that cut in the lending rates by the state-owned banks will also increase competitive pressure on their private sector counterparts which in turn will also announce similar cuts.

"Competition from public sector banks will force private sector banks to reduce their lending rates sooner than later. It will happen sooner than later," Chidambaram had said.

As usual Punjab National Bank, country's second largest lender has taken lead in reducing BPLR and has decided to reduce by 100 basis points to 12.5 per cent, which will automatically reduce PLR-linked loans by the same margin.

PNB spokesperson said the new BPLR will be applicable to all existing and new accounts. The authorities have taken decision to reduce rate "in response to monetary measures taken by RBI in November such as reduction of repo rate from 8 to 7.5 per cent, CRR (Cash Reserve Ratio) from 6 to 5.5 per cent and SLR (Statutory Liquidity Ratio) from 25 to 24 per cent."

Previously Punjab National Bank had cut its lending rates in the first week of November. The rates were then revised downward by 50 basis points to 13.5 per cent.

At present most of the banks have BPLR around 13 per cent.

PSU banks reducing interest rates is the result of number of steps taken by the RBI to introduced into the banking system Rs 2,70,000 crore since October and cuts in the short-term (repo) rates, signaling soft interest rate regime.