Stock Recommendation: UTI Bank

Dalal Street Journal ( Diwali Buys) 16-29 Oct-2006

Here's a bank with increasing net interest margin (NIM), improving asset quality, well cushioned investment portfolio, consistant dividend payment history and better than industry average growth. UTI Bank is one such scrip which meets all the above parameters and becomes one of the scrips for our Muhurat buys. The growth of UTI Bank's business continues unabated. The current account and savings accout (CASA) ratio of the bank stands at 40 percent of the total deposits, NIM has improved consistently in each of the quarters in FY06 and even the fee-based income continues to be strong. The asset quality in on an uptrend due to the lower incremental defaults and the bottomline growth has been strong. At the CMP of Rs.410, UTI Bank is trading at P/E of 17.88x of FY07E earnings as compared to 20.32x of ICICI Bank, 23.98x of Kotak Mahindra Bank and 26.70x of HDFC Bank, which makes the scrip more attractive. We also think the UTI Bank could become a prime acquisition target for the foreign banks and expect the counter to trade at a higher premium going forward.

The major growth is expected from the increased branch network. UTI Bank has a pan-India presence with 367 branches, 95 extension counters and 2,000 ATM ( which is the third largest ATM network among banks in India). The bank is planning to roll out 100 more branches in FY07 and most of these branches will be set up un rural areas, which will result in higher retail banking business and increased share of the low-cost CASA deposits. The bank expects the share of these low cost deposits to increase to 42 percent in FY07E.

For Q1FY07, the deposits stood at Rs.42,094 crore while advances stood at Rs.25,836 crores. The important fact is that the retail advances constituted 30 percent of the total advances. We expect the share of retail loans to touch 32 percent by the end of FY07. Clearly indicating that the bank is focussing more on high-yielding retail assets. The net interest margin of the bank has shown consistent improvement in the past and stands at 2.68 percent. With improvement in yield on advances and increasing CASA deposits, the NIM of the bank is expected to improve to 2.90 percent at the end of FY07. The fee-based income of the bank is also expected to increase with opening of new branches and tie-ups with the MFs. This income will give the much needed stability to the bank"s overall profitability by reducing its dependence on the highly volatile treasury income. The asset quality of the bank has improved consistently and the net NPAs stand at 0.73 percent . According to the management, the net NPA level is expected around 0.60 percent at the end of FY07. Hence, with all these positive factors, we recommend the investors to buy the scrip with a minimum on one years perspective.

Punjab National Bank's Doorstep banking:

The Bank has launched doorstep banking through vans in North Delhi. The areas covered under the facility are Azadpur, Gujranwala Town and Model Town. The van will be stationed at three venues in two shifts - morning and afternoon, for duration of 20 to 40 minutes at each venue. Customers can make select transactions and requests for banking activities. Initially, only cash less service will be offered through the doorstep banking van.

Result Update : Punjab & Sind Bank

Net profit of bank rose 102% to Rs.72.93 crore for the second quarter ended September 30, 2006 against Rs.36.08 crore over the same period last year. The deposits grew by 35.44% to Rs.19,372 crore and advances grew by 55.28% to Rs.7,255 crore from Sept. 05 to Sept. 06. The net NPA stood at 1.81 % at Sept. 06.

Result Update : Centurion Bank of Punjab Ltd.

Net profit of CBoP rose 49% to Rs.31.13 crore for the second quarter ended September 30, 2006 against Rs.20.9 crore over the same period last year. The bank's net NPA stood at 1.3%. The deposits stood at Rs.11,383 crore against Rs.8,071 crore and advances stood at Rs.8,385 crore against Rs.5,113 crore.

Result Update : South Indian Bank Ltd.

Net profit of SIB for the quarter ended September 30, 2006 has grown by 383% to Rs.41.65 crore compared to Rs.8.63 crore over the same period last year. The gross NPA has come down to 5% and net NPA has come down to 1.69%. The Capital Adequacy Ratio has gone up to 11.50%. The total business grew 28 % to Rs.18,224 crore.

Result Update : HDFC Bank

Net profit of HDFC Bank rose 31.7 % to Rs.262.94 crore for the second quarter ended September 30,2006 against Rs.199.64 crore over the same period last year. Total deposits stood at Rs.63,447 crore (39.6% growth) and Total advances stood at Rs.49,326 crore (34.2% growth) for Q2. The Net Interest Margin was maintained at 4% which is highest in the industry. The Capital Adequacy Ratio was at 12.1%. The share of low cost deposit stood at 52% of total deposit base

Union Bank of India to sell gold coins:

Joining the bandwagon of banks selling gold coins and bars, Union Bank of India has also launched sale of gold coins of 5gm, 8gm and 10gm weight having 99.99 purity at select branches all over India.

Bank of Rajasthan hikes deposit rates:

With effect from October 6, 2006 the bank has hiked the rate of interest on deposits for the following periods; Deposit for 61 to 90 days - 5.75% , Deposit for 1 year to less than 2 years -8.25%, Deposit for 5 years and above - 8.50%, Interest on its tax savings deposits will be 8.50%.

Nobel Peace Prize for Bangla Banker

The Nobel Peace Prize was awarded on Friday to Muhammad Yunus of Bangladesh and the Grameen Bank that offers loans to poor people without any financial security. "Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means" said Ole Danbolt Mjoes, the chairman of the Norwegian Nobel Committee. Yunus, dubbed "Banker to the Poor," began fighting poverty during a 1974 famine in Bangladesh with a loan of $27 to some villagers to save them from the clutches of the moneylenders. The economist professor is now seen as one of the main developers of the concept of "micro-credit", which gives entrepreneurs who are too poor to qualify for traditional bank loans. very small sums to start up their own enterprise. Borrowers used the loans to buy their own tools and equipment, cutting out the middlemen and transforming their lives through self-employment. The Grameen Bank has 6.5 million borrowers of which 96% are women.

Result Update : Jammu & Kashmir Bank

Jammu & Kashmir Bank has reported a 53% growth in its net profit for the quarter ended 30th September 2006 on the back of 51% rise in its fee based income. The net profit for reporting quarter stood at 84.02 Crore up from 54.90 crore. Net interest income grew 18% from 163.5 crore to 193.3 crore. Deposit grew 4% to Rs.20,392 crore and Advances grew 18% to Rs.14,020 crore.

Result Update : UTI Bank

UTI Bank has reported a 30% growth in net profit to Rs.141.98 crore for the second quarter ended 30th September 2006. Treasury income has fallen by 66% to 23.33 crore. The corporate advances has grown by 55% to Rs.20,607 crore and retail loan has grown by 66% to Rs.8,514 crore. Q2 performance Net Profit Total Income Deposits Advances Net NPA 2005 109.01 865.73 34,055 18,404 1.03% 2006 141.98 1254.86 48,986 29,121 0.74%

Mandvi Co-op bank to merge with Saraswat Bank

Mandvi Co-operative Bank Ltd. with a large Gujarathi clientele, is to merge with India"s largest co-operative bank, Saraswat Co-operative Bank Ltd. Following the merger Saraswat Co-op bank will have total business of around Rs.12,567 crore, branch network of 105. It is to be noted that Mandvi Co-operative bank is also making profits.

BoM to raise Rs 300 cr through bonds

Public sector lender Bank of Maharashtra will raise up to Rs 300 crore through a bonds issue during October 12-13 to meet the capital adequacy requirement. The Upper Tier II bonds with a maturity period of 15 years will be issued at a coupon rate of 9.10 per cent per annum, the bank informed Bombay Stock Exchange. The bank will pay 9.6 per cent interest per annum from 10th year onward if the call option is not exercised

PNB biz hits Rs 2,13,000 cr

The country's second largest public sector lender Punjab National Bank has achieved a business of Rs 2,13,000 in the first half of this fiscal. "The total business (deposits and advances) is around Rs 2,13,000 crore and we expect to surpass the goal of deposits and advances set for the year end-March 2007," a senior PNB official said. Deposits of the bank stood at Rs 1,29,000 crore while advances were at Rs 84,000 crore till September this year. The bank had set a business target of Rs 2,25,000 crore for 2006-07.

Union Bank to raise Rs 1,400 cr in 5 mths

Union Bank of India plans to mobilise Rs 1,400 crore capital funds through issuance of bonds over the next five months. This week, the mid-sized public sector bank also raised Rs 300 crore of perpetual debt. The bank raised the Rs 300 crore through its maiden perpetual debt issue at a coupon rate of 9.45 per cent for the first 10 years and 9.95 per cent for all subsequent years. Union Bank has drawn up a massive capital-raising plan to maintain its capital adequacy ratio (CAR) substantially above the mandatory 9 per cent even after implementing the Basel-II capital adequacy norms. The bank requires capital funds not only to support credit growth but also to provide nearly Rs 500 crore for operational risks under the new capital adequacy norms

HSBC money transfer scheme

Global bank HSBC has launched a new money transfer service for Indians living in the Gulf in a bid to boost its share of the multi-billion dollar India remittance pie. The 'One World' money transfer scheme will allow Indians to open bank accounts in the UAE even before they arrive here, to transfer their credit history from India as well as help with their credit card and mortgages, Mr Manasije Mishra, head of NRI services for HSBC India said on Tuesday. Indians living in the UAE can also transfer money to their HSBC accounts in India free of charge using cheques or the Internet.

Yogesh Agarwal, new SBI MD

The State Bank of India has a new Managing Director in Mr Yogesh Agarwal. He has been appointed as Managing Director of the board of State Bank of India with effect from October 10. Prior to this appointment, Mr Agarwal was the Managing Director of the State Bank of Patiala.

SBI commercial branch in Bahrain soon

The State Bank of India is set for a major expansion in Bahrain with the opening of its first commercial branch in the country next month. The bank had set up its first office in Bahrain 30 years ago and earlier upgraded its status to the headquarters of its West Asia and North Africa operations

CIBIL plans products to spot good customers

Mr S. Santhanakrishnan, Chairman, Credit Information Bureau of India Ltd (CIBIL) said, till now the focus with regard to using the CIBIL database had been more on spotting the defaulters and avoiding the possibility of refunding such delinquents. CIBIL is coming out with a couple of new products that will enable banks to spot their good customers and reward them. Another product, 'Macro analysis of the bureau data', sliced product-wise, geography-wise, is to be launched in December. With this, banks can thus compare their own profile vis-à-vis the industry profile as thrown up by the bureau data and take suitable corrective measures to shore up the risk profile of their books. CIBIL would also be launching "Bureau Credit Scores" for individual borrowers by February 2007. This is a product that is getting introduced in India for the first time.

PNB plans to tap HNIs, may offer portfolio services

For a country witnessing 19% growth in its number of high net worth individuals (HNIs), this sure is opportunity for banks like Punjab National Bank, which is planning a foray into offering portfolio management services (PMS). It is currently waiting for regulatory approvals. “We are looking to enter the portfolio management space. But as public sector banks, we are not allowed to offer advisory services. We are sorting some regulatory issues with the RBI,” a top official at the bank said. The RBI rules say a bank must firewall its PMS portfolio from its other business, to ensure that the bank’s exposure in capital markets does not affect its balance sheet. Also banks have to obtain a dual licence from RBI and Sebi, before they can offer discretionary PMS - i.e., manage the funds actively on behalf of their clients. At present, public sector banks are losing out to foreign and private banks in offering such services.