Government banks looks good for investment
10 Mar 2016
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With state-run banks such as State Bank of India and Punjab National Bank cleaning out their closets by recognising stressed assets and making provisions to cover them, the public sector banking space may look promising for long-term investors but some analysts sounded caution, citing lack of clarity on the roadmap for recovery.
Shares of public sector banks plummeted 10-12% in the month of Feb following their dismal financial performances weighed down by rising sticky loans.
The Reserve Bank of India has mandated banks to start the cleaning up process from this quarter itself and complete the act by FY17. Banks may need to set aside as much as Rs 70,000 crore of additional funds to cover the stressed advances over the two quarters, putting strain on profitability.
SBI announced 62% fall in net profit on account of rising sticky assets leading to a 2.99% fall in prices to Rs 154.20 on the Bombay Stock Exchange (BSE), which is less than half of its 52-week high of 315.80. Banks such as Allahabad Bank and Dena Bank reported losses in the December quarter. BSE BANKEX was down 3.81% to 15,889.
Investors who look at a longer time horizon not less than two years may buy banking stocks at this level because the cleaning up act would create value in these stocks in the long run after FY17.