Although the asset quality concerns have weighed on the valuations of the entire banking space, especially those of the public sector banks, United Bank of India which reported the highest bad loans amongst its listed peers is trading at record low valuations in the sector.
After reporting a net loss of Rs 1238 crore in the quarter ending December 2013 and the highest bad loan ratio (NPA) amongst the listed Indian banks, the shares of United Bank of India have been trading near their all-time low. The stock which got listed in March 2010, is currently trading at 0.22 times its book value for the fiscal 2012-13 (Rs 115.83 per share). United Bank shares have lost 21% of their value in the year so far and are down 61% from their listing price of Rs 66. On Monday the stocks closed at Rs 25.45, very close to its all-time low closing of Rs 24.25.
This is the lowest valuations assigned to a PSB given that banks like Andhra bank, IDBI Bank, Canara bank, Allahbad bank, Union bank are trading at PBV ratio of 0.32 to 0.37 times. Compared to this range, some of the bigger PSBs including Punjab National bank (0.56), Bank of Baroda (0.7) and SBI (0.84) are changing hands at better valuations even though their price are below the book value.
However, a look at the decayed financials of United Bank seems to justify the street's dislike for the stock. The bank not only reported gross NPAs of Rs 8546 crore (10.82%), the total restructured assets stood at Rs 5524 crore. It's Tier I ratio breached the minimum requirement of 6% while Banl's capital adequacy ratio also reached the minimum regulatory requirement.
Given that United Bank's asset quality is expected to remain under pressure with sizable exposure to troubled infra, power and steel sectors, the street may not get excited with its low valuations as yet. The bank also faces corporate governance probe with a reported appointment of a forensic auditor by the Reserve bank may also continue to act as an overhang on the stock.