Going forward: What needs to be watched out for The banking sector had witnessed lots of headwinds in FY14 like increasing interest rate scenario, slowdown in credit growth, tightening of liquidity and persistent asset quality issues. Going forward, with a stable government in place, industrial capex is expected to see a modest pickup, supporting credit growth. Moreover, asset quality concerns are likely to ease ahead as revival in economic activity boosts cash flows.
Some concerns like continued addition in stressed book, cases of fraudulent practices adopted by some banks have come up in limelight and have shaken the banking industry as a whole. Despite these concerns we are encouraged by the various reforms taken by the government and followed by RBI which will help the overall banking industry in the longer term.
RBI has taken lot of steps like identifying stressed assets at early stages by formation of Joint Lender Forum (JLF) and norms for restructuring. These steps are directionally positive for the overall sector in the longer run. However, in the near term it is likely to lead to some more pain for the banks for 1 or 2 quarters after which the stress may subside. Near term performance of the banks lacks any major catalyst and we advise accumulate on dips strategy.