In what can now be called a prescient move, foreign institutional investors (FIIs) raised their stakes in Indian banks in the quarter ended March 2012. Not surprisingly, the BSE Bankex gained 32.32% compared with a rise of 25.82% in the benchmark Sensex. However, investors appear to have stayed with the best names in the industry; shareholding patterns of top banks like SBI, HDFC Bank, Axis Bank on the National Stock Exchange (NSE) show that both the number of FIIs as also the proportion of equity they held in Indian banks rose sequentially over the December 2011 quarter. While the quarter was a difficult one for banks given the acute shortage of liquidity and the spike in yields, the Reserve Bank of India (RBI) infused some R80,000 crore of liquidity through a 125 basis points cut in the cash reserve ratio.
SBI, which is expected to post a reasonably good results in Q4 FY12, saw 58 new FIIs investing in it in the March quarter, taking the total FII shareholder tally to 572. They collectively held a stake of 8.7% in the country?s biggest lender up from 7.8% in the previous quarter. Axis Bank also saw 30 new FIIs pick up stakes and the private sector lender had 573 FII shareholders, who together held a 33% stake up from 31.4% at the end of December 2011. HDFC Bank, which reported a sterling set of numbers for the three months to March 2012, saw 18 new FII shareholders taking the tally to 782; together they held 30.7% up from 29.7% in the previous quarter. Between January and now, FIIs have bought stocks worth $8.9 billion; in April they have picked up equities worth around $65 million.
Morgan Stanley maintains its cautious view on Indian banks after the RBI cut the key policy rate by 50 basis points to 8% on Tuesday. ?The underlying asset quality has remained weak while window dressing (restructuring) may help reported numbers,? the brokerage observed in a note. The brokerage believes that while the rate cut should be a positive for bank stocks since they do well in a rate cut cycle, it points out that ?we are not in a rate cut ?cycle?. It adds that, from banks perspective, the key variable is the loan-deposit ratio – which stands at almost all-time high levels of 77% and deposit growth has been anaemic at less than 15%.
?Previous rate cut cycles were in the backdrop of much lower LD ratios. Given the requirement of banks to invest in government bonds and maintain reserves with RBI, LD ratio above 75% implies that high rates are here to stay, in our view,? the brokerage noted, adding that lower rates help loan growth and slow down deposit growth and banks cannot afford that.
?At best, they may reduce rates marginally to show allegiance with RBI, not enough to reduce stress in the system,? it concludes.
According to Kotak Institutional Equities, public banks, which grew their overall loans by 22% CAGR for FY2008-12E, will likely moderate to 15% CAGR for FY2012-14E while private banks would grow at 19% CAGR for FY2012-14E as compared to 17% in FY2008-12E. ?Growth for private banks would be higher mainly due to better performance by ICICI Bank in recent years. A sharp decline in sanctions might require us to tweak our estimates further unless we see a sharp improvement in the investment climate, ? the brokerage observes.
Punit Srivastava, who tracks banking at Daiwa Securities, points out that with banking stocks accounting for about a fourth of the weightage in the Sensex, banks are an important constituent of the FII investment portfolio. ?Also with the expected softening of interest rates, the downside risk is lower,? he said.