Banking is a sector that is always in the limelight and on the radar. The Bank Nifty has been a little vulnerable in the past few days. To get a 360 degree perspective on the sector CNBC-TV18 spoke with MB Mahesh of Kotak Institutional Equities.
On the overall banking sector, he said, “Recent data from RBI’s perspective on the capex cycle suggests that loan growth demand continues to look fairly muted and it looks like it will remain muted for some more time. Corporate India still is either deleveraging itself or you could buy out capacities in the market through the IBC process or otherwise. So, on the face of it, it looks like corporate loan book which is about 35 percent of the banking system credit, still looks fairly weak.”
“Retail loan book so far is doing quite okay. We are still clocking about 15-17 percent kind of a number. Some of it is obviously led by the fact that the NBFCs have been a little bit weaker of late. So, to that extent, we can kind of extrapolate that for the next one year at least this could hold on, but the underlying core demand is kind of weakening at the margin and you have seen that in product portfolios like autos at least," he said, adding that on the SME kind of lending still seems to be fairly okay, but you would ideally pencil in a 7-10 percent kind of loan book growth for this financial year.”
On the positive side, pricing for the sector seems to be okay, so margin outlook is fairly comfortable for the banking system, he said. Asset quality is a bright spot and despite all the concerns one has led by defaults of couple of NBFCs, asset quality continues to decline for the banking sector, he added.
When asked if he thought the deal between Axis Bank and Max Financial was likely. Both the companies are currently in an exclusive talk, he said, “ We have just got the preliminary announcement on this issue. On the face of it we have not seen any new development from the regulator side at least. So, we will wait and see as to what the economics of this transaction looks like and then we can probably take a call on this transaction.”
“On the face of it, it does look like Axis Bank is a little bit more comfortable running an insurance business at this point of time,” he said, adding that stock wise they have a reduce rating on Axis Bank and are positive on Max Financial.