Banking Stocks: 2 To Buy And 1 To Avoid Ahead of Credit Policy

Updated: Saturday, May 30, 2015, 12:10 [IST]

Banking stocks saw a lot of activity yesterday, ahead of the RBI's Credit Policy. Bank stocks that have managed to control their non performing assets are seeing a lot of interest.

Banking Stocks: 2 To Buy And 1 To Avoid Ahead of Credit Policy

The RBI is expected to cut interest rates on June 2 and while most of this would be on expected lines, if the tone of the RBI's policy is dovish we would see further rise in banking stocks. Here are 2 banks to buy and one to avoid.

Union Bank of India

This is one stock that has seen a lot of traction ever since it declared its results. The non performing assets improved sharply, both at the gross level and at the net level. The management was hopeful that we would see further improvement in the asset quality.

If we see the full year EPS for 2014-15, it was Rs 28. The price to earnings is just 6. Now it is rather low for a bank that can improve its asset quality going forward. Also, if the RBI continues to cut interest rates it would further provide a boost to the earnings of the bank.

Also, if economic recovery happens at a faster pace, it could benefit a bank like Union Bank of India.

Bank of Baroda

Bank of Baroda saw its non performing assets improving sharply in the quarter ending March 31, 2015.

Gross non performing assets dropped to 3.72 per cent from 3.85 per cent, while net non performing asset dropped to 1.89 per cent from 2.11 in the previous quarter. The net interest income of the bank was placed at Rs 3,171 cr vs Rs 3,124 crores (year-on-year).

Like Union Bank of India the company will benefit from economic recovery and lower interest rates.

Bank of India

Bank of India is a stock that you can avoid buying. The non performing assets quality worsened by 132 basis points to 5.39 per cent for the quarter ending March 31, 2015.

The problem is that the NPA rise is not marginal, but way too steep. The stock touched a 52-week low on the NSE on Thursday and analysts say there may be more room for downside.

It's a stock that you might want to avoid till the selling pressure subsidies.

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