Bank Nifty (Feb) : Need To Stay Abv 14550-750 Zone For Any Real Recovery

 For BNF, sustaining over 14550-750 area, expect 15200-400;

Otherwise can fall up to 13800-500 zone in the days ahead.

After "prolonged anesthesia & deep surgery" (RBI-AQR)

Banks may require "organ replacement in order to be out of ICU".

But Govt's initiatives may be too little & too late;

and it will be very difficult for the ailing PSBS to raise substantial funds from the market also.

Trading Levels: BNF-Feb

LTP: 14335

SL=+/-	25 POINTS	FROM	SLR
For	Intraday Swing	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	14535		14585-630*	14750-835	14945-975	15095-185*	15215-425	<14485
Weak <	14485		14435-350*	14299-240	14100-030	13800-730*	13600-500	>14535
FOR	Conservative	Positional	Trader
			T1	T2	T3	T4	T5	SLR
Strong >	14535		14630*	14750	14835	14975*	15185-425	<14485
Weak <	14485		14350*	14240	14030	13800*	13500-340	>14535

We all know that after RBI-AQR, cumulative gross stressed assets (NPA/NPL) as on Q3FY16 stands around Rs.4.4 lakh cr and the same may reach to around Rs.8 lakh cr by Q4FY16. Out of these NPA of Rs.4.4 lakh cr in the Indian Banking system, 16 listed private sector banks has gross NPA of around Rs.46271 cr and the rest belongs to the 24 listed PSBS (around Rs.3.93 lakh cr).

Most of the PSBS except BOB indicated that there may be similar amount of provisions for stressed assets in the Q4FY16 also as par the RBI-AQR directives to come clean by FY-17. Thus expected amount of gross NPA in the PSBS may be around Rs.8 lakh cr by FY-16 and by FY-17, it may reach around Rs.15 lakh cr as par some market talk/DYFM's earlier statement.

One more interesting point is that PCR (provisioning coverage ratio) should be above 70% as par RBI norms. But as on Q3FY16, reporting PCR of most of the PSBS are well below it to around 55% on an average from around 57% as on FY-15.

Q3FY16 PCR for BOB stands around 52.70% (against 64.99% as on FY-15); similarly for PNB its 53.85% (58.21%) and for SBI its 65.23% (69.13%). If the PSBS will require to make the PCR to around 70% as par RBI norms, then it may account for more provisioning/loss in Q4FY16.

Thus, except SBI, which is relatively on a better footing due to its massive size and balance sheet strength (too big to fall !!), all the other PSBS are literally bankrupt and in "deep coma". But, SBI is also on the top in terms of gross NPA for Rs.72791 cr as on Q3FY16.

We have seen incremental jump in provisioning after the RBI-AQR . Surely, the massive jump in gross NPA(s) did not occur in the last three months and this is the result of decades of reckless financing, corporate greed for over expansion & diversification, slow project executions, lack of highly expected overall economic recovery and demand in India and current global turmoil.

On FY-15, there was around Rs.3.02 lakh cr NPA and it increased by around 34% in Q3FY16 and sequentially by 4.12%.

Now the question is bank's role in proper accounting (cooking of accounts ??) and RBI's supervisory role into it for the previous years.

Further, if we look at the recovery of the NPA(s) and fresh slippages, the latter is outstripping the former in a much greater extent. For example, SBI has managed to recover around Rs.2761 cr in the current FY till Q3, whereas its bad loans jumped from Rs.56725 cr to Rs.72792 cr in the same period, yes, there is effect of RBI-AQR, but still the real situation is quite alarming.

If there is no significant economic recovery in India and the current "gloom & doom" situation prevails globally for some more years, there may not be any improvement in the earnings of the highly leveraged corporates in the coming quarters/years, which has huge balance sheet debt. Infact, we may see substantial earning downgrades in the months ahead. In that scenario, a substantial portion of the gross NPA(s) may be never repaid to the banking system and has to be completely waived off.

Another scenario is that in case of no real monetary recovery by the banks, they will resort to massive assets selling and that may also distort the market as supply will be far greater than real demand (e.g. real estate / housing prices may collapse).

Since 2010, Govt has pumped around Rs.68000 cr in the ailing PSBS for recapitalization and its aiming to infuse another Rs.20088 cr by FY-16 under mission (vision ??) "Indradhanush".  As par this mission, Govt is committed to infuse Rs.70000 cr over the next four years. But this amount is too little and too late. As par some calculations, PSBS may require an amount of around Rs.3 lakh cr in the near term just to stay afloat and compliance of Basel-III norms. 

Now, Govt may not be in a position to infuse huge capital in the PSBS, given its current fiscal deficits issues which is likely to be more constrained in the coming days with implementation of 7-PC/OROP/proper accounting of unpaid food, fertilizer & oil subsidy etc. On the other hand, consistent deviation from fiscal discipline path, rating agencies may also downgrade India.

Right now, market may not show any great trust on the PSBS, even after Q3 NPA disclosure and downplaying the whole RBI-AQR exercise by the Gov/RBI-Gov as market feels that this is just a tip of the ice bug and much more can come in the days ahead. So, Govt's budget proposal of increasing the FPI/FDI limit in the PSBS from the existing 24% to 49% may not serve any purpose as its too late.

There is some talk of "Bad Bank" model in India to deal with "toxic assets" in the line of TARP in US and for that ARCS has to be backed by the Govt. 

Ultimately, its the tax payer's money or disinvestment of some of the PSUS, which will fund the PSBS recapitulation. But, now SC already jumped in, various questions will raise about how the Govt can recapitalize the PSBS in such scenario of default by some of the corporates, effectively repaying some of the private debts with public money, which is also against larger public interest.

There are also M&A talks in the Indian Banking space as the country is not the place of so much banks of different sizes; 5-6 large sized banks in public & private spaces may be enough for India.

Though, there is no issue with private banks M&A, the same may not be so much smooth for the public counterparts for various sociopolitical reasons.

Indian policymakers and RBI also is clearly behind the curve from the global financial trend as when major part of the global economy is dealing with ultra low interest (ZRIP/NRIP) with negligible inflation and negligible/very low bank loan interest (2-4%) to the borrowers there, we are dealing with decades of high interest regime (10-15% to the borrowers) and above 5% inflation. 

Traditionally, India is a high cost economy and cost of doing business is comparatively very high here in comparison to other DM(s), ASEAN or even with some EM(s), primarily because of high regulatory charges, borrowing costs and non-transmission of massive slump in Oil prices to the economy/end consumers. This, along with the present transformation from the "Black/Unaccounted money" to the "White/Accounted" economy may be largely responsible for the present state of corporate earnings downgrade and NPA mess with the Banks.

Unless & until, this is corrected, there is practically no hope for structural improvement in the present scenario of the banks/PSBS as the current loan disbursement may even turn into future NPA(s), specially, if the much expected overall economic recovery do not happen in the near future and remains a fantasy.

Technically, BNF may be in the initial phase of  4-th Wave of the daily EW system after completing the 3-rd Wave in around 14570 and the target of the corrective 4-th Wave may be 14100-13800-13600. In the alternative scenario, consecutive closing above 14650, this probability will be invalidated and the impulsive 3-rd Wave target may be around 15200-15400.

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