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Going forward, corporate-oriented banks should report better ROAs & ROEs: Sanjay Dongre

Retail-focussed banks are able to showcase very robust underwriting standards.

ET Now|
Last Updated: Jan 21, 2020, 09.09 PM IST
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One or two quarters of a little higher NPAs on the retail segment is not going to dent the valuations of these retail oriented banks in a significant manner, says Sanjay Dongre, Fund Manager, UTI AMC. Excerpts from an interview with ETNOW.

Do you think there is a serious shadow on Kotak Mahindra Bank's retail book?
If you look at the retail segment loan growth, all the banks including the major retail banks have actually slowed down disbursement in this segment and their growth rates have significantly come down in the last two-three quarters. It is not that the banks are lending at pretty high rates. Their loan growth is not pretty high loan growth in the retail segment. Clearly there is a slowdown and that is being recognised by the banks.

It is only the personal loans or the credit card loans that were driving the overall loan growth for these banks. Clearly, the other parts of the retail loan like housing loan or loan against property (LAP) or auto loans have seen a slowdown.

What is your own portfolio leaning towards -- the corporate-oriented private banks and retail oriented private banks?
Retail-oriented banks had witnessed NPA cycle way back in 2009-10. But post that, there has been an upgrade as far as the underwriting standards are concerned. The retail oriented banks are able to showcase very robust underwriting standards and that is reflected in the lower NPAs they have reported so far.

In a period of two-three quarters where you would have loan growth, maybe slightly high NPAs on the retail segment but that is not going to derail overall profitability, ROA structure or ROEs that these companies report over medium to long term. I do not think one or two quarters of a little higher NPAs on the retail segment is going to dent the valuations of these retail oriented banks in a significant manner.

You will have those bits of volatility in the equity market. Corporate-oriented banks have recognised a large part of the stress on their books and therefore their slippage ratio seems to be normalised. This quarter, however, there is a little increase in the slippages but nothing substantial actually. One can expect going forward that the credit cost for these banks will come down to normalised range of 100 to 150 bps compared to 250 bps or 300 bps that they are reporting today. Going forward, corporate-oriented banks should report better ROAs and ROEs and that is what is reflected in the valuations rerating that we have witnessed in the last one, one-and-a-half years.

In my portfolio I continue to remain positive on the corporate oriented banks and in the overall mix of the banking exposures, my exposure is inclined more towards corporate banks.

The other area which has done very well going into the Budget and where expectations are high is the real estate and construction sector. In this Budget, if further steps are taken, do you see a ripple effect on the economy? How do you like that space?
In real estate, the change in the overall industry structure and regulations have resulted in some of the market share gains moving from unorganised sector to organised sectors. Companies which were more organised, have a linear balance sheet and which seem to be getting a benefit, seem to be getting better valuations in the marketplace.

Talking about the Budget, we will have to wait and watch what kind of measures the government comes out with. It will suffice to say that the real estate sector has direct and indirect linkages with so many other sectors and therefore any measure which releases stress in the real estate sector will benefit the overall economy.

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