Tag: KFA

Banks: Where do we go from here?

India, the third largest economy in Asia, saw its lowest growth rate in a decade for the fiscal year ending March 2013. The yearly average of 5% was only a tad higher than the last quarter growth rate of 4.8%. Slow economic growth has also affected banks, drastically so for state-run sectors. Loan defaults are piling up as companies go bankrupt. And the companies that can pay via their loaded promoters are trying to wheedle out through corporate data restructuring (CDR).

Private or public, the graph slopes down

Banks saw a 51% hike in non-performing assets (NPA) in 2012-13, with the scale tipping towards public sector banks (PSB) that lend funds out of noblesse oblige. Since the government holds a majority stake in PSBs, the banks have to finance groups and projects that may not be commercially viable but need to be supported for “social good” or “nation building.” The fact that these government initiatives are eventually funded by the taxpayer makes no difference.

Furthermore, state-run banks have a different investment agenda from private players that’s often triggered by a “me too” mindset. It’s common for PSBs to pool funds into industries backed by the government or supported by other state-run banks. Risk assessment checks are inadequate even though public sector banks typically involve more documentation and longer approval cycles, at least for the common man.

The net profit of 38 listed banks in the private and public domain showed a mild rise of 3.63% in the March quarter with private banks outpacing their public counterparts. The net profit of PSBs actually fell by 6.64% while that of private banks rose by 24.63%. The growth rate for the fiscal year amounts to -2.63% and +28% for respective sectors.


Net profit drop in United Bank
Net profit drop in United Bank


State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and Canara Bank – all showed loss in the March quarter though SBI’s net profit rose 20.5% over the year. Private sector banks such as ICICI Bank Ltd, HDFC Bank Ltd, Axis Bank Ltd, Kotak Mahindra Bank Ltd, Yes Bank Ltd and IndusInd Bank Ltd saw quarter and year net profit rate hikes ranging from 21% to 47%.

Next up, operating profits across banks rose by 6.78% through the March quarter, with private banks experiencing close to 25.41% growth and PNBs only 0.52%. The underlying difference seems to be better control of bad loans by private banks. Public sector banks have had to set aside hefty amounts to cover bad debt, impacting their net profit substantially.

CDR misuse

Indian banks have recast over ₹2 trillion under the CDR mechanism that gives companies under stress some relaxation through lower lending rate and extension of repayment periods. While the objective of CDR is to give debt-laden companies a second chance, it is being grossly misused by companies with affluent promoters well able to infuse funds into the dying business. Kingfisher Airlines is one such case.

In a bid to control CDR misuse and reduce bad debt, Finance Minister P Chidambaram has come down hard on loan defaulters, recommending strict steps for banks to recover funds without hurting the industry. The RBI too is working on the final guidelines to increase the promoter’s contribution in restructuring to a minimum of 15% of the diminution or 2% of the restructured debt, whichever is higher. Banks can demand more from promoters depending on the risk of the project and the promoter’s financial ability to commit.

As a result, banks are showing some clout to recover debts – UCO Bank issued a public notice against Nitin Kasliwal, chairman and MD of S Kumars Nationwide Ltd, guarantor of a ₹110.07 crore loan taken by Reid & Taylor. The ad carries Kasliwal’s picture as well in a bid to “name and shame.” Kingfisher Airlines is not having it easy either.

The banking slowdown hasn’t bottomed out yet as the chances of accelerated economic growth is dim for another few quarters. Regulatory tightening and control of willful loan defaulters will help banks to a degree but no respite is expected from the RBI this time in view of inflation and high current account deficit. Banks will just need to cut their loss and swim with the tide for now.



[stockquote]AXISBANK[/stockquote] [stockquote]BANKBARODA[/stockquote] [stockquote]BANKBEES[/stockquote] [stockquote]BANKINDIA[/stockquote] [stockquote]CANBK[/stockquote] [stockquote]HDFCBANK[/stockquote] [stockquote]ICICIBANK[/stockquote] [stockquote]INDUSINDBK[/stockquote] [stockquote]KFA[/stockquote] [stockquote]KOTAKBANK[/stockquote] [stockquote]PNB[/stockquote] [stockquote]PSUBNKBEES[/stockquote] [stockquote]SBIN[/stockquote] [stockquote]UCOBANK[/stockquote] [stockquote]YESBANK[/stockquote]

Time to Deboard KFA

We caught a glimpse of the falling knife and also identified the good times during the last 3 weeks time. In this period [stockquote]KFA[/stockquote] has seen a low of Rs. 9.10 to the recent intraday high of Rs. 14.15 with a close of Rs. 13.45 awarding a whopping 48% return. 


Well in the past 3 – 4 trading days , the stock has seen many drops. It has also developed a short term resistance around Rs. 13.9. The technicals like CMO, MACD and RSI are identifying a reversal of the past weeks trend.

You can wait for a break-out of the resistance level, or can use this opportunity to book your profits and alight the flight of KFA while it is still flying.

KFA: Trying to break free?

A 6% return in a 5 days time and the scrip still headed up. [stockquote]KFA[/stockquote] was trading cheap about a week ago. With hopes of FDI in the airline industry, it seems to have gotten the push. The technicals as of yesterday suggest a hold, but fundamentals haven’t improved that much over the week.

Prices pierced through the last 20 days triangle with the support of higher volumes suggesting a bullish breakout.

So, set your stop-losses at 9.50 and wait for the trend to play itself out. image

To Catch a Falling Knife: KFA

The bird in the picture is none other than the brightly colored Kingfisher. Wikipedia has established in their status and conversation page on Kingfisher (birds) that “A few species are considered threatened by human activities and are in danger of extinction”. Can it be true for the Indian Kingfisher airlines [stockquote]KFA[/stockquote] as well?

Let’s have a look at what the technical tools are suggesting.


Prices have broken the 6 months trend line with good volumes. The heavy buying at the 52 weeks low also is suggestive of a potential resistance (You might want to check for another bounce back for confirmation).


Going forward, Guppy’s short term lines contraction are clearly suggesting an up move for the scrip in the near term. MACD is also lending a hand for this suggestion as the MACD line has just crossed the signal line from below (Pointing an upward possibility) .

Technicals suggest a short-term buying opportunity in Kingfisher. But long-term issues remain unresolved – this is purely a short-term, technical call.

Countertrend: Does India Inc. Need A Bailout?

Gone are the heady days of blowout earnings and record revenues. All that has given way to defaults, debt restructuring and distress sale. The once blue-eyed boys of corporate India are now in deep red, giving blues to investors and lenders.

Corporate credit defaults surged to the highest in a decade last fiscal with textiles, steel and construction & engineering sectors accounting for a quarter of total defaults, according to imagerating agency CRISIL. It noted that 3.4% of the companies it rates defaulted on its debts.

Rising input and interest costs coupled with slackening demand and weak pricing power have impacted corporate margins. Therefore, servicing of loans has come under stress. CRISIL adds that weak liquidity caused by elongation of working capital cycles have led to defaults. Companies like Bharati Shipyard, Kingfisher, GTL Ltd, Hindustan Construction Co, etc have managed to restructure their debt or sought approvals, thus avoiding default on their existing debts.

imageDomestic funding has been hit hard in the last 18 months, thanks to the record 13 times (175 bps) hike in repo rate since March 2010. Asset quality stress has permeated into the health of banks. Between March 31 and December 31, 2011, gross NPAs of banks rose to 2.9% of advances from 2.3% while the quantum of restructured debt spiked to 3.3% of advances from 2.5%. Higher provisioning requirements as a result of rising non-performing assets will dent the profitability of banks.

Going forward, pressure on corporates’ balance sheet is expected to ease due to lower interest rates, softening of commodity prices imageand flexibility to defer capital expenditure. But credit quality may take time to recover as interest rates are only expected to decline at a slower pace while global demand, especially in the Eurozone, looks wobbly.

Even as more companies opt for Corporate Debt Restructuring (CDR) or moratorium on loan payments, lenders can learn a lesson or two from these events. Their aggressive lending practices during the preceding boom years coupled with lack of due diligence and laxity in monitoring of loan accounts are also to blame for the deterioration in their asset quality. Banks would do well to tighten the screws from their end to insulate themselves in stressful situations.

[stockquote]KFA[/stockquote] [stockquote]CRISIL[/stockquote] [stockquote]GTL[/stockquote] [stockquote]BHARTISHIP[/stockquote] [stockquote]HCC[/stockquote]