[T.S.R:16459] UBS India Research: Downgrading Banks; First Chinks Appear

 UBS India Research

Downgrade PSU banks, LIC HF: Upgrading HDFC Bank

We cut PTs by 5-20% and downgrade BOI, Union Bank to Sell from Neutral, and PNB, BOB to Neutral from Buy. 

Sector risks are adding up now: book profit 

After NPL risks on Microfinance/telecom loans (2G licenses) and issue of slower deposit growth these bribery charges have put Indian financials into a 'perfect storm'. All these things are adding up together and posing a threat to sector fundamentals in our view. Moreover, we would expect investors to book gains in the sector given the strong YTD performance. The RBI Governor is pushing banks to lend more at lower rates, while raising deposit rates. He calls this process "inclusive banking". In such a scenario, Microfinance institutions and privately owned NBFCs with no access to deposit  but funding operations by borrowing upto 9 times their Net Worth from PSU Banks will make them defunct in the financial sector.

 

Corruption charges on officers of LIC HF, PSU banks and LIC of India

Central Bureau of Investigation has arrested officials of LIC Housing Finance (CEO), Bank of India (GM), Punjab National Bank (DGM), and LIC of India (Secretary) on alleged charges of corruption and improper lending done through a private loan syndicator. 

Expect LIC HF to de-rate further; Advantage for HDFC Ltd

Loans involved in alleged bribery cases for LIC HF is 0.6% of its balance sheet and all are secured loans as per media reports. Our conversation with PNB suggests that loans are secured and there is no NPL risk. We do not expect systemic NPL risk arising out of this issue. However, we expect LIC HF stock to underperform further post these bribery charges (similar to Shinhan FG of Korea) given the management disruption and fresh questions on quality of the loans (please refer page2). We expect HDFC Ltd to benefit from potentially weakened competition.

 

 
 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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