Banking stocks, especially the government owned banking stocks, have gone nowhere in the last few years. While investors in select private sector banking stocks have made money, investors in government owned banks have not. Is a turnaround in sight? Should we buy government owned banks now?
Punjab National Bank
Punjab National Bank (PNB) reported a better than expected set of quarterly numbers for the quarter ending June 30, 2018.
The bank reported a net loss of Rs 940 crores, as against expectations of a net loss of Rs 2,200 crores.
The next two quarters for PNB are likely to be bad, as the company has to provide another 37 per cent provisions for the loss suffered on account of the Nirav Modi account. This 37 per cent would be spread across the next two quarters.
We see a remarkable improvement in numbers thereafter. What is interesting is that substantial provisions have been made and if the bank recovers anything from the assets of Nirav Modi or his companies it would be a positive.
Secondly, it has already launched a claim with the Enforcement Directorate with regards to Nirav Modi companies.
Fresh slippages, or new loans turning bad, fell on a sequential basis to Rs 5,250 crore in the quarter ending June 30, 2018, which is a big positive.
PNB: Value in subsidiaries
The one interesting thing about PNB is that it can boost capital through stake sale in subsidiaries. A stake sale in PNB Housing Finance could fetch the bank around Rs 7,000 crores.
Plans are already underway for a complete stake sale in the bank. Punjab National bank's stake in PNB Metlife is also likely to fetch the bank a good deal.
This is likely to shore up the capital for the bank. The bank has made heartening recoveries for the quarter ending June 30, 2018, especially from the SME sector. Quick resolutions for insolvency cases under the Insolvency and Bankruptcy Code would also augur well for the bank.
If you are planning to hold the shares of PNB for the next two years, it is not a bad bet to buy into the bank. The country's second largest bank does offer value at the current levels. A good undervalued banking stock for long term value. Check stock quote of PNB here
South Indian Bank
South Indian Bank had great performance for FY 2017-18. During the quarter ending June 30, 2018, the company saw a slight dip in its financial performance.
The net profits of the bank for the quarter ending June 30, 2018 dipped to Rs 92 crores from Rs 155 crores in the corresponding period of last year, largely on account of gratuity expenses and also marked to market losses.
However, the Current and Savings Account (CASA) grew by 8 per cent, while deposits grew by 10 per cent.
The bank has clearly outlined strategies for the coming quarters. It has set up a new retail banking Department to focus on retail loan & liability/investment
products. A sustained focus on CASA and reducing non performing assets will remain a part of the future strategy for the bank.
It plans to granulize loan portfolio to spread out risk, while adopting a cautious approach on corporate lending to reduce risk.
The shares of South Indian Bank are trading near 52-week lows of Rs 18.10.
South Indian Bank is one bank that continues to be undervalued and is available at a p/e of only 10 times one year forward earnings. This makes the bank a good pick at the current levels.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author owns shares in Punjab National Bank.