There has been a Good News making a Case for having a Look at the Battered Bank Stocks
The banking sector recorded half of FY 2019, after a consistent rise in the last three-and-a-half years. Collective losses of 21 PSU banks declined to Rs 11,605 crore in the third quarter from Rs 14,743 crore in the second quarter and Rs 16,614 crore in the first quarter.
Actually, a drop in the fresh slippages and some Rs 80,000 crore debt resolutions through NCLT proceedings has helped the sector reduce NPAs. Meanwhile, banks are expecting to recover more than Rs 1 Lakh crore in 2019 as several big-ticket default cases are pending. Both the government and the central big-ticket default cases are pending. Both the government and the central banks have initiated measures to tackle NPAs and brought about various regulatory norms. RBI has also addressed the issue of stress in the MSME sector by allowing one-time restricting of stressed loans during Jan-March 2019 period.
In order to tackle NPAs, the government has announced recapitalization of PSU banks to the tune of Rs 2.11 lakh crore in October 2017 through the infusion of government capital and fundraising by banks from the market. During FY2017-18, the government infused Rs 88,139 crore in PSU banks and made provisions for Rs 65,000 crore made in the Budget for this financial year. In December 2018, the government infused Rs 28,615 crore in seven public sector banks through recapitalization bonds. The latest government’s announcement to inject Rs 48,239 crore in 12 public sector banks this financial year will not only help banks to maintain regulatory capital requirements but also finance growth plans.Besides, five state-run banks are likely to exit the prompt corrective action (PCA) framework soon after meeting their regulatory capital norms.
On the NPA front, the silver lining is that NPA recognition process, which started in 2015, is almost complete and now NPAs have begun to stabilize, even though they are still at an elevated level. Capital positions have softened and the provision coverage ratio has improved to some extent. Almost all PSU banks are showing remarkable improvement in recognition, provisioning, recovery, and reforms.Other data showed credit growth of scheduled commercial banks (SCBs) has improved to 14.5 percent till February 1, 2019, from 10.6 percent the previous year.The government effort indicates that it has been doing a lot to make the banking sector turn around. The government’s recapitalization exercise would increase new credit, and aid credit growth. This, in turn, would spur growth in the Indian economy.
Given these developments, one may think of going long on the stocks such as State Bank of India, Bank of Baroda, Bank of India and United Bank.