Broadening Base

Updated: Nov 27 2002, 05:30am hrs
UTI Bank scrip has seen some activity lately after talks of placement of its equity. A clutch of foreign investors has expressed express their intent to acquire a stake in the bank since it enjoys sound fundamentals and good growth rate.

The Banks CAR at 9.7 per cent needs to go up if the Bank has to keep pace with the increase in its business. And this placement may fetch the Bank Rs 180-200 crore that may result in expansion of the tier I capital. The paid up capital may go up to Rs 240 crore.

A crucial aspect relates to a change in the banks business mix. So far the Bank has predominantly been dependent on corporate banking. However, it has successfully leveraged its retail initiatives. Now retailing is the fastest growing segment. The fall in average yield on its retail portfolio (which is higher than on corporate portfolio) has been compensated by expansion of the portfolio.

However there is a caveat here. Nearly 48 per cent of its retail assets are from auto financing, more so of commercial vehicles and cars.

Though the returns are one of the highest from this segment, it is also one of the riskiest businesses.

The bank has also targeted cash management services (CMS) as a key area. Three years ago UTI was the only client. However, dependence on UTI, its parent, has come down as the bank has added several companies for CMS.

Besides, it is handling government tax collection business especially in Andhra Pradesh.

The bank collects revenue on behalf of the government which in turn reduces the RBI overdraft for the state resulting in saving on interest costs. In lieu of this the bank gets a float, besides Rs 1.18 for every thousand rupees collected.

The retail thrust has helped it to lower the cost of deposit (CoD). The banks average CoD is 7.73 per cent down from 8.96 per cent a year ago. This has increased its spread to 1.95 per cent which may look low when compared to that of public sector banks.

However, that is understandable as the bank follows a different business model that depends more on fee and non-interest income.

PSU Stocks
After remaining subdued over a month or so, the public sector undertakings (PSU) stocks have bounced back on the bourses. Domestic funds and institutional investors were seen picking up PSU stocks recently for their attractive valuations. This is being backed up with an impressive showing of the PSUs during the last quarter. Their strong asset base makes them ideal buys for a long-term portfolio.

As a result, PSU stocks such as ITI, RCF, Neyveli Lignite, HPCL, Shipping Corporation and Nalco have recorded gains of between five to 20 per cent in the last two trading sessions. The old reliables like ONGC, Chennai Petroleum, Bharat Electronics, BPCL, MTNL and Kochi Refineries have also reported marginal gain in their share prices.

However, the scenario was quite different during the last 17 trading sessions. Between 28 October and 22 November 2002, the Mumbai Stock Exchange (BSE) PSU Index lost over 5.7 points to 1,415.71 over 1,421.41. in contrast to BSE Sensex having gained 307.2 points at 3,141.61 over 2,834.41 during the same period. In the last two trading session the BSE PSU index has gained over 32 points to 1452.34.

Recent news reports point to a compromise arrived at during the high level ministerial meeting on the disinvestment of oil sector PSUs. The compromise has become necessary to attain a divestment target of Rs 12,000 crore during the current fiscal. Already, the government has mopped up Rs 5,000 crore (approx) through its disinvestment programme. Any dithering over oil companies divestment will not help the cause.

Unless disinvestment is pushed through, the government may end being Rs.7,000 crore short of the target. Thus there is fear that the current pace with which disinvestment programme is pushed it would not be possible to attain a disinvestment target of Rs 78,000 crore in the Tenth Five Year plan.

In its effort to push divestment process, the government has taken corrective steps lately. Reserve Bank of Indias latest measure to allow ADR/GDR sponsorship by domestic companies will further strengthen the divestment process.

Now any company can issue ADRs/GDRs in the overseas market and the same proceeds have to be utilised for acquiring governments stake in the PSUs. This move is likely to see increasing participation from NRIs in the ADR/GDR issues.

Sachchidanand Shukla & Laxmikant Khanvilkar