The week ending June 8th saw the Sensex settle at 3495. Hardly satisfying, but a relief that the markets are showing signs of coming to terms with the new systems coming to effect from next month. Significantly, the tech stocks also participated in the consolidation. Markets reacted favourably to Aptech separating its training division and marging with Hexaware.  Penta Media is slowly wriggling out of the bottom to which it had been pushed after the KP episode. Analysts are also bullish about Cement stocks. Amidst all this positive developments, the Banking sector is also showing some signs of spark.
 Last year when Indian Overseas Bank and Syndicate bank went public, there was little enthusiasm in the Banking stocks. Both shares listed below par and continued to be quoted now below par. However, during the last fortnight, both the Banks came up with performances worth a second look not only at these stocks but at the Banking sector itself. IOB  reported a raise in PAT from Rs 40 crores last year to around Rs 115 crores this year. Syndicate Bank reported a raise in PAT drom Rs 215 crores to around Rs 235 crores in the same period. If these results are any indication, the banking sector seems to be in a good wicket at present.
 In the light of this scenario, the performance of one of the favourite Banking stocks in the market namely Corporation bank warrants a close look. The Bank has reported an increase in the PAT from Rs 232 crorees to Rs 262 crores. The EPS has moved up to Rs 21.82 as a result of this increase. The  price of Rs 141 at which the shares are quoted therefore represents a P/E of around 7. Compared to the P/E ratios of 4 at which IOB shares are quoted and 2.5 at which Syndicate Banks shares are quoted, Corporation Bank P/E is at a relatively higher plane. It however compares favourably with the P/E ratios commanded by the new generation Banks like ICICI Bank and HDFC Bank which are at the levels of 30 to 40. 
Corporation Bank is amongst one of  the dynamic Banks of the PSU pack and has been recording good financial performance year after year. Its net profit has increased from Rs 192.03 crores in 1998-99 to Rs 232.44 crores in 1999-2000 and now again to Rs 262 crores in 2000-2001. 
During the year, the Bank recorded an incremental Deposit growth of  of Rs 2281 crores.  The Bank’s lending policies have always been very conservative. During the year, the net advances increased by only Rs 888 crores  while Investments grew by Rs 1069 crores. Being more of an “Investment Bank” than a “Lending Bank”, the NPA s of the Bank have been one of the lowest in the system at around 1.98%.  Even though this trend of cutting NPA’s by cutting lending is not a healthy practice for the Industry, Equity Investors should be happy as long as the Bank makes money keeps its risks low.
 To support this  “New Generation Banking” policies, Corporation Bank has made significant strides in computerization. Presently nearly 81 % of its business is covered through Computerised branches. The Bank has also introduced Internet banking to its Corporate clients and is taking steps to extend it to retail customers as well. 
In continuation of its “Profits First” principle, the Bank has been looking for new avenues of income through “Service Products”. It appears to have grabbed a golden opportunity now by striking a strategic alliance with LIC. Under this arrangement, Corporation Bank will undertake distribution of life insurance products, especially bank assurance products designed by LIC. It will become a corporate agent for LIC and tap the vast customer base of the bank for selling life products and increase its fee-based income. LIC increase its equity stake in Corporation Bank to 27 % from the existing level of 13 %, through private placement of shares. Since the prices for the acquisition is to be fixed based on the  SEBI formula the investor value in the market is unlikely to In view of these developments and the general positive outlook in the Banking industry,
 Corporation Bank shares continue to be a good long term investment prospect at the current price level of Rs 140. Investors should consider increasing their exposure in the share. Those who opt for low risk high yield investments can also look at IOB and Syndicate Bank shares at the current near Par values.
 

 Na.Vijayashankar
June 9, 2001