Private vs PSU Banks: What’s Driving the Market? Sudeep Bandyopadhyay explains

“Vodafone Idea faces two completely different problems. The first is their balance sheet. They raised funds through the FPO, and things seemed to be moving in the right direction. However, his curative petition being dismissed by the Supreme Court, Rs. Over 70,000 crores of debt came back, which is a big blow for Vodafone Idea. They now need to go back to the drawing board to find ways to raise significant funds to handle these liabilities,” says Sudeep Bandyopadhyay, Group Chairman, Inditrade Capital. Edited quotes:

ET Now: While the Nifty Bank index saw a strong rally, it was the PSU banking stocks that did not participate much. What is your understanding of what is exciting for these private banks and why PSU banks are still lagging behind? Do you believe PSU banks will catch up next week?

Sudeep Bandyopadhyay: There are two sides to this entire BFSI (Banking, Financial Services and Insurance) sector – buy or not buy, rally or not. The first aspect is that interest rates are going to come down; It is only a matter of time. The US has already started cutting rates, and while we can debate whether that will happen in October or December, interest rates in India should and will come down. When interest rates come down, BFSI gains because BFSI generally has a gain of 30-40 basis points between the rate cut and the pass-on effect, so they gain and it should be a secular gain. However, efficient banks and NBFCs (non-banking financial companies) will benefit more, obviously.

Another part of the argument is that there is a significant, for lack of a better term, war for deposits. Demand is high, and a bank’s success depends on its ability to collect low-cost deposits. Here, the distinction becomes clear – it must be an efficient bank with a wide network to efficiently mobilize deposits and meet credit demand. If a bank cannot collect low-cost deposits, it will either fail to meet credit demand or rely on high-cost deposits, compressing margins, which the market dislikes. Under these circumstances, the market is favoring efficient, large private sector banks that can collect low-cost deposits and meet the demand for credit, indicating incremental performance. This is why private sector banks are gaining ground compared to PSU banks with wide networks, which are considered less efficient in deposit mobilization.

ET now: Buzzer of the week, what’s your take on Vodafone Idea? It has seen a sharp decline mainly due to recent news, but we have just heard that Vodafone Idea’s management will hold a conference call on 23rd September. What is your view on this stock, now its FPO price is only Rs. Trading below 11? What commentary do you think investors want from management?

Sudeep Bandyopadhyay: Vodafone Idea faces two completely different problems. The first is their balance sheet. They raised funds through the FPO, and things seemed to be moving in the right direction. However, his curative petition being dismissed by the Supreme Court, Rs. Over 70,000 crores of debt came back, which is a big blow for Vodafone Idea. They now need to go back to the drawing board to find ways to raise significant funds to handle these dues.

Another issue related to Vodafone Idea is working. They have been losing customers month after month for quite some time now. We expected that after the FPO, things would stabilize and the monthly loss of customers would stop, but unfortunately, that has not happened. This is a significant problem for Vodafone Idea, as it needs to retain and acquire customers but is currently losing them, which is devastating. Management needs to clarify their strategy for customer retention and acquisition, which is decisive and independent of AGR dues and Supreme Court decision. Investors are eager to understand their action plan on this front. Another area is fundraising; They need to find ways to raise significant funds to survive, grow and eventually transition customers to 5G, which they have yet to plan for.