| . | The stock markets went into a firm
bear grip last week with several key counters turning weak. The week started
with Mumbai and Ahmedabad reeling under a spell of unprecedented rain which
disrupted normal life. In the middle of the week uncertainties about the
law and order situation in Mumbai with the possible arrest of Mr Bal Thakre
kept the pressure. As the week ended, a weak Rupee in the foreign exchange
markets and FII selling created near panic conditions in a market which
is over dependent on the large investors. While TISCO announced a 600 %
increase in profits, L&T announced a 76 % fall in quarterly profits.
FIIs however were reported to have sold on both counters. Similarly, on
the IT counters, Satyam was weak while NIIT seems to have attracted some
attention. Overall, as the Sensex closed the week at 4463, a further fall
in the coming days would not be surprising.
As a measure of stabilizing the sliding rupee, RBI announced some measures which are likely to have impact over the next week. The measures announced by RBI included increase of CRR by 0.5 % and the Bank rate by 1 %. The immediate impact of the measures would be to reduce liquidity in the system by Rs 1900 crores and bring down the market values of the Gilt securities. If the increase in the Bank rates stay for some time, Banks are likely to increase the interest rates first on advances and then on Deposits. While the initial impact of the falling Gilt values would be reflected as losses in the investment portfolios of Banks, in the long run the profitability can be preserved with the re adjustment of the Lending and Deposit rates. The changes in the value of the investment portfolio is purely temporary and can bounce back if the rates are revised once again. Retail investors should therefore keep their long-term perspective and hunt for opportunities. We shall therefore look at one such less glamorous scrips with a reasonable growth potential in the Banking sector namely the UTI Bank. UTI Bank is one of the new generation banks promoted in 1994 by UTI. It operates through a network of 49 branches across the country. During the latest quarter, it has announced a substantial increase in its profitability with the Q1 profits for FY 2000-2001 going up from Rs 6.38 crores last year to Rs 16.09 crores. Eventhough the interest income has gone up by around Rs 60 crores, there has been a corresponding increase in the interest expense as well. The staff cost has gone up by 50 % and other expenses have nearly doubled. These cost increases have been compensated through "other income" which includes investment related revenue. The increase in the profit has therefore been made up mainly from the substantial reduction in provisions and contingencies and a growth in the "other income". The shares of UTI Bank are now quoted around Rs 35-40 reflecting a P/E of around 9 to 9.5. Compared to HDFC Bank and ICICI Bank which have a multiple of around 40, this is a reflection of the quality of the Bank and its Parent organisation in the eyes of the investing public. However, one cannot deny that the Bank has been making some attempts in the recent days to expand its activities and improve efficiency through the use of Information Technology. Apart from a plan to increase its branch network from 49 to around 75 in the next few months, the Bank is set to increase the ATM network from 97 to 200. It has also opened Internet Banking to keep pace with the market demands. Some of the strategies indicated above are attributed to the initiatives of the new Chairman who has taken over recently. Hopefully this should open a new window of opportunity to the Bank to reduce the gap between itself and the front runners such as the ICICI Bank and HDFC Bank. While one can acknowledge that the Bank can benefit a lot by its association with UTI, the reality appears to be different. One of the main challenges faced by the Bank is its management culture derived from UTI where the performance bench marks are not the competing Banks but the UTI itself. If the management is "Privatised" from the hands of the UTI, and the culture is brought in tune with the Commercial Banking system, UTI Bank can make enormous progress. Investors can add this share to their portfolio with the hope that the new Chairman will unravel this hidden potential of the organisation. Na.Vijayashankar July 22, 2000 |
. |