With banking consolidation being looked at under the microscope at the moment, speculation is rife as to which one could be a good target. And, among the PSU banks, Dena Bank is seen by analysts as one such target. Though its asset quality has been rather suspect, the bank has maintained its current account and savings account (Casa) ratio at 36.9%levels in the second half of the 2009-10. This is because 60% of its branches are in the rural and semi-urban areas. Therefore, the cost of funds that Dena Bank has is around 6% (as in 2008-09) and compares well with the average 6.6% for mid-size PSU banks. In that year, the bank?s net interest margin (NIM) stood at 2.85% and is expected to dip to 2.26% in 2009-10 as estimated by analysts at Angel Broking . This dip in NIMs is attributed to the cut in PLR by150bp in the last nine months and deployment of excess liquidity in liquid mutual funds. The issue for the bank remains that of improving its capital adequacy ratio (CAR) which was at 13.3%, comprising only 7.3% equity capital, is considered to be below optimum levels. Hence, analysts consider it to be a soft target when the consolidation plan kicks off. Till then, Dena Bank is expected to receive Rs600 crore over the next year. And after the capital infusion, the bank?s Tier-I will improve to 9.9% from 6.8% in 2008-009. This in turn will allow it to grow its advances, reckon analysts. The bank?s net NPA was 1.2%, in the second quarter of 2009-10, with cumulative restructured advances at Rs1,500cr. These are 5% of the loans and, 69% of the net worth. As per a recent RBI circular, the bank?s effective provision coverage including technically written off portfolio (Rs1,525cr) is 82% as against the mandatory 70%, due to which an adjustment to book value for NPAs in no longer required, believe analyst at Angel Broking. Further, this portfolio is expected to yield outsized income from recoveries relative to peers, they add. The bank?s provisioning cost, as a percentage of average assets, declined from 2.3% in 2005-06 to 0.4% in 2008-2009. Going ahead, with the economic outlook improving, this reckon analysts, would lower incremental provisioning costs and help the bank maintain its profitability levels.
Dena Bank: a takeover target?
With banking consolidation being looked at under the microscope at the moment, speculation is rife as to which one could be a good target. And, among the PSU banks, Dena Bank is seen by analysts as one such target.
