Companies & Sectors
Excitement over banking sector bills placed before Parliament unlikely to yield immediate positive results: Kotak

The amendment bill (banking) is a step towards issuing new licenses for banks, but not the final step, says Kotak Institutional Equities update on the banking sector

 
Kotak Institutional Equities, in its banking sector update, is guarded about the recent excitement surrounding bills placed before the Parliament. The amendment bill (banking) is a step towards issuing new licenses for banks, but not the final step. There are very few positives in the amendments. 
 
However, the changes in the SARFAESI Bill are positive as they increase the strength of banks to initiate recovery of bad loans, says the Kotak update. (SARFAESI stands for Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest).
 
The Kotak update maintains its cautious outlook as there is no strong RoE (Return on Equity) improvement as slowdown in revenue growth may be accentuated and credit costs are unlikely to decline sharply over FY2013-14. The RoE is estimated to be 14%-15% for public banks and 16%-17% for private banks. 
 
SBI (State Bank of India) and ICICI Bank are the preferred stocks, conclude the analysts of the Kotak update regarding the performance of major players on the banking sector in the stock market.
 
On the proposed banking sector legislation and its consequences, the Kotak update says that new licenses are to take time; and new instruments will be allowed to raise capital for public banks. The likely delay in passing the bill implies that RBI (Reserve Bank of India) could extend the timeframe to take the next step towards issuing fresh bank licenses. The RBI is looking to have the power to supersede the board and/or inspect books of entities that are not directly supervised. 
 
The amendment bill (banking), according to the Kotak analysts, has some positives, though: (a) Nationalized banks can issue bonus/rights shares, which would be important as investors and regulators can expect a strong capital-raising exercise ($20 billion) over the next few years as banks transition to Basel-III; and (b) increased shareholder voting rights (10% for public banks and proportionate holding for private banks) is a positive as it gives shareholders better representation.
 
According to the amendment bill (banking), the RBI will be given powers to supersede the board of directors for a period and to appoint an administrator for a period not exceeding 12 months. Currently the RBI has the power to remove a director or any other officer. The RBI will also have the power to seek information, inspect books and returns of associate companies. There will also be increased fines and penalties for violation of the Banking Regulation Act, 1949. Depositor Education and Awareness Fund will have access to deposits that have been unclaimed or non-operative for more than 10 years. Mergers in banks will be exempt from the Competition Commission Act, 2002, as these activities are closely monitored/regulated by the RBI. All these factors are likely to improve the safety of the money brought into the banking sector by many small customers.
 
SARFAESI (amendment) Bill will put banks in a better position to recover bad loans, according to the Kotak update. The passing of the SARFAESI (amendment) Bill is positive in the current environment. The amendment  bill (a) reduces the time at the DRT (Debt Recovery Tribunal) by giving banks a fair representation by filing a caveat before granting any stay and (b) the period to respond to borrowers (after notice) will be extended to 15 days from seven days currently. Time-bound disposal of cases (as mandated in the Act) should improve after the new amendment, says Kotak. Asset reconstruction companies would be allowed to convert the debt (all or part of it) of borrower companies into equity/ shares.
 
The other bills pending before Parliament include: (1) Insurance: A hike in FDI in the sector to 49% from 26%; (2) Pension Fund: Statutory powers to the interim authority set up earlier; (3) Micro Finance: Development and regulation of these entities; (4) National Housing Bank: Transfer of ownership and increase in RBI’s power (5) SIDBI: Expansion of definition of activities. 
 
Of these bills, Kotak feels that the insurance bill could have a positive impact on the market as it gives an opportunity to select insurance companies to unlock value of their investments.
 
The Kotak update points out that the banks listed in the stock market are fairly valued at the current levels. It maintains a cautious outlook on select recent developments as broader concerns about asset quality and slow growth persist. Revenue slowdown (less than 15% growth due to slower loan growth and higher margin pressure) will be accentuated in FY2014E and credit costs (1.3% of loans) are unlikely to decline from their peaks. 
 
Apart from restructuring of the SEB (state electricity boards) portfolio, Kotak analysts do not see any large impairment from the infrastructure space, especially loans taken by private companies for power generation. From historically low levels of delinquency, Kotak expects to see higher slippages in the retail portfolio of banks but this would not be a serious cause for concern in the medium term.
 
NPLs (non-performing loans), which have risen sharply in recent quarters, are likely to remain elevated in the priority sector, predict Kotak analysts. They believe slippages may remain elevated (more than 2.5% over FY2012-14E) as the NPL (non-performing loan) cycle is yet to peak, especially from corporate balance sheets, infrastructure and iron and steel. 
 
The Kotak update maintains the view of there being higher credit costs due to (a) higher slippages (b) improving coverage ratio, which has deteriorated in recent quarters, and (c) dynamic provisions. Implementation of dynamic provisions may result in a situation in which the asset-quality cycle and loan-loss provisioning cycle could be different.
 

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Cabinet okays 30% cut in spectrum reserve price for four circles

The reserve price for 1800 MHz band in the service areas of Delhi, Mumbai, Karnataka and Rajasthan is reduced by 30% from the previous reserve price

New Delhi: The Union Government has cut by 30% the reserve price for mobile phone airwaves in four zones that went unsold in all-India spectrum sale last month, reports PTI.

 

Airwaves in Delhi, Mumbai, Karnataka and Rajasthan found no taker in the auction as bidders found the prices too high.

 

"The reserve price for 1800 MHz band in the service areas of Delhi, Mumbai, Karnataka and Rajasthan be reduced by 30% from the previous reserve price," an official statement said citing a decision taken by the Union Cabinet at its meeting this evening.

 

The government also fixed the reserve price for spectrum in 900 MHz band, which will be auctioned simultaneously with 1800 Mhz airwaves in Delhi, Mumbai, Karnataka and Rajasthan.

 

The spectrum in 900 MHz will be auctioned in Delhi, Mumbai and Kolkata.

 

The reserve price in last month's auction was Rs693.06 crore for Delhi circle, Rs678.45 crore for Mumbai, Rs330.12 crore for Karnataka and Rs67.08 crore for Rajasthan.

 

The new base price after 30% cut would be Rs485.142 crore for Delhi, Rs474.915 crore for Mumbai, Rs231.084 crore for Karnataka and Rs46.956 crore for Rajasthan.

 

"The reserve price for 900 MHz spectrum in Delhi and Mumbai be twice the revised reserve price for the 1800 MHz and in Kolkata be twice the price obtained for the 1800 MHz band for this service area in the auction held in November 2012," it added.

 

With regard to payment of spectrum currently held in 1800 and 900 MHz bands by existing operators in the four service areas where auction determined price is not available, it has been decided that such operators be charged at the revised reserve price, on the applicable quantum of spectrum, till such time as auction determined price becomes available.

 

"After the auction price becomes available, the earlier payment made on the basis of reserve price would be adjusted against the amount actually due," it added.

 

Reacting to the development, Cellular Operators Association of India (COAI) said there needs to be transparency in how the reserve price is arrived at.

 

COAI Director General Rajan S Mathews said "Participating is not the problem. All our operators by and large especially when 900MHz is involved will be interested. The question is what is the right price."

 

The last 2G mobile phone spectrum auction was virtually a flop as government managed to garner bids worth just Rs9,407 crore as against a minimum target of Rs28,000 crore.

 

Compared to the 3G auction, which lasted 35 days and got Rs67,719 crore, the last round of 2G spectrum auction held in November lasted just two days.

 

Mathews said: "We are concerned as to how the reserve price was arrived at. Why the 30% reduction, why not 40, why not 50. So, there needs to be transparency and understanding how the reserve price was arrived at."

 

Mathews further said the issue should be sent back to Trai for reconsideration and a comprehensive review.

 

"In case it does not happen, we will wait for the final (auction) guidelines and examine if it has violated any of our legal rights," he said.

 

In last month's auction, 176 blocks were put to auction, of which 102 blocks were bid for and won. Bihar was the only circle, where the winning price was 9.22% higher than the reserve price, while 17 circles went for the reserve price. The remaining four circles saw no takers.

 

None of the companies in fray bid for pan-India spectrum for which the reserve price was set at Rs14,000 crore.

 

The government had put on auction more than half of the spectrum that was freed from Supreme Court in February this year cancelling 122 mobile permits issued by the then Telecom Minister A Raja to nine telecom companies in 2008.

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Sales transactions on mobile devices may grow by 20% by 2015

According to a research commissioned by TCS, customer services and mobile-specific market campaigns are also expected to experience substantial growth as a percentage of overall consumer interactions

 
New Delhi: Consumer sales transactions completed on mobile devices is expected to grow by 20% between 2012 and 2015 in India, reports PTI quoting a research note.
 
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