Bank stocks had moved up last week in anticipation of big-ticket reforms in the banking sector.
However, the move came about as a damp squib as it was just an enabling provision to help banks raise more equity from the market.
The proposal to bring down the government stake down to 33 per cent would essentially come through banks increasing their equity or through a reduction of capital.
As no one can hold more than 1 per cent of the equity, it would ensure that no strategic partner comes in nor a change in management would be possible.
As the public sector character of the banks would be retained together with parliamentary supervision, it does little to change the management style either.
The move to grant greater autonomy to bank boards would as a result come as a cropper.
The government has also retained the right to appoint the chairmen and directors on the boards of the bank, thus doing little to induct in more professionalism and entrepreneurship.
The ability to restructure cost base and issues of independence of management would still remain.
Key long-term issues including legal reform to address asset recovery and universal banking remain unaddressed too.
The lack of reform has impeded meaningful reduction in non-performing assets.
The credit growth is likely to slow down in the coming months on the back of slower industrial growth.
The interest rate environment is also expected to be fluid, which will put pressures on the spread.
Technology has widened the gap between pro-active banks and others.
Most public sector banks have been unable to respond to the opportunities created by technological change.
As most of the PSU banks having controlled market share till now are facing capital and management constraints, pro active private banks have managed to gain share and grow rapidly.
While bank stocks, particularly those in the PSU sector are currently available at attractive valuations, there aren't significant upsides to the performance at these levels.
While we are not bearish on the sector, a lot would depend on the portfolio churning by institutional investors.
With the information technology sector going out of favour for fresh money buys, a defensive sector like banking could be looked up to by investors.
In that event, if portfolio churning does take place, the sector may find favour.
There aren't any indications of that happening now.
Individual private sector banks with a technology edge are expected to continue to generate investment interest.
However, the move came about as a damp squib as it was just an enabling provision to help banks raise more equity from the market.
The proposal to bring down the government stake down to 33 per cent would essentially come through banks increasing their equity or through a reduction of capital.
As no one can hold more than 1 per cent of the equity, it would ensure that no strategic partner comes in nor a change in management would be possible.
As the public sector character of the banks would be retained together with parliamentary supervision, it does little to change the management style either.
The move to grant greater autonomy to bank boards would as a result come as a cropper.
The government has also retained the right to appoint the chairmen and directors on the boards of the bank, thus doing little to induct in more professionalism and entrepreneurship.
The ability to restructure cost base and issues of independence of management would still remain.
Key long-term issues including legal reform to address asset recovery and universal banking remain unaddressed too.
The lack of reform has impeded meaningful reduction in non-performing assets.
The credit growth is likely to slow down in the coming months on the back of slower industrial growth.
The interest rate environment is also expected to be fluid, which will put pressures on the spread.
Technology has widened the gap between pro-active banks and others.
Most public sector banks have been unable to respond to the opportunities created by technological change.
As most of the PSU banks having controlled market share till now are facing capital and management constraints, pro active private banks have managed to gain share and grow rapidly.
While bank stocks, particularly those in the PSU sector are currently available at attractive valuations, there aren't significant upsides to the performance at these levels.
While we are not bearish on the sector, a lot would depend on the portfolio churning by institutional investors.
With the information technology sector going out of favour for fresh money buys, a defensive sector like banking could be looked up to by investors.
In that event, if portfolio churning does take place, the sector may find favour.
There aren't any indications of that happening now.
Individual private sector banks with a technology edge are expected to continue to generate investment interest.
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