Markets slip into the negative

Tue, 19 Jan 11:30 am

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After a shaky start, the Indian markets have slipped into the negative territory during the previous two hours of trade. Stocks from the realty and IT sectors are the ones witnessing overall declines, while consumer durable, metal and banking stocks are garnering buying interest.

The BSE-Sensex is trading lower by around 60 points, while the NSE-Nifty is trading lower by 20 points. However, buying interest is being witnessed among mid and small-cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.4% and 0.7% respectively. The rupee is trading at 45.62 to the US dollar.

IDBI Bank announced its results yesterday. Its interest income grew by 36% YoY in 9mFY10, on the back of 21% YoY growth in advances. The bank's capital adequacy ratio stood at 11.5% at the end of 9mFY10. Net interest margins were higher at 1.2% from 1% in 9mFY09 despite a lower CASA proportion. However, its net NPA to advances came in higher at 1.4% in 9mFY10 from 1.3% in 1HFY10. Its cost to income ratio shrank from 49% in 9mFY09 to 37% in 9mFY10. Net profit margins dropped by 0.2% YoY in 9mFY10 due to higher provisioning costs. IDBI Bank has managed to outperform the sector average by clocking nearly 21% YoY growth in advances in 9mFY10. Further, in doing so, the bank has paid heed to margins which have improved over the quarters, albeit marginally.

IDBI has indeed been particularly aggressive in growing its retail advance portfolio, which has grown at a faster clip than that in most PSU banks, although on a lower base. Our biggest concern for IDBI Bank has been its poor provisioning policy. The same has come to the fore in terms of impacting the bank's performance at a time when its margins are on an upward trend. IDBI Bank's net NPAs have sequentially increased in the past three to four quarters to 1.4% in 9mFY10. The bank's provision coverage, has however, fallen from 50% in FY08 to 33% in 9mFY10. This is half of RBI's mandate of 70% coverage by 1HFY11 and lies way below that of its peers. Going forward this will entail substantially higher provisioning that will take away the bank's cost advantage due to its lean structure.

Shriram Transport Finance (STF), the country's largest asset financing NBFC (non-banking finance company), also announced its results. Its interest income grew by 20% YoY in 9mFY10 on the back of 24% YoY growth in assets under management (AUM). Net interest margins dropped to 6.9%, from 7.4% in 9mFY09; with increased pressure on loan yields. Incremental lending skewed towards used vehicles. Other income fell by 18% due to lower proportion of income from securitisation. Net profits grew by 33% YoY in 9mFY10 aided by lower operating costs. The company's net NPA ratio declined from 0.8% in 1HFY10 to 0.7% in 9mFY10.