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Only sweeping structural change can lift PSBs: Religare Cap

Nobody from the private sector wants to lose out the hefty pay packages which are into millions and take very challenging role of PSU, says Parag Jariwala of Religare Capital Markets.

Parag Jariwala of Religare Capital Markets gives his views on the banking sector post reforms announcment.

Below is the transcript of Parag Jariwala’s interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.

Reema: The big mover today is Bank of Baroda (BOB) it has gained closed to about 13-14 percent. With PS Jayakumar on board with his Citi experience and 53 years of age do you think it is going to be a game changer for Bank of Baroda? Have you changed the view on the bank or are you likely to do so?

A: I have not changed my view on the bank. I agree to a point that four out of five managing directors (MDs) are having a public sector units (PSU) banks background. Canara Bank with Rakesh Sharma on the board with 33 years from State Bank of India (SBI) and only one year from very small private sector bank ultimately he is a PSU cadre. Only one good appointment to my mind is the Bank of Baroda.

I am very excited to see how the things move out because this is a first time when we see a private sector MD taking over as a PSU bank MD. Given that still we have to see lot of things as it moves out. The entire sector is going through a lot of pain in terms of non-performing assets (NPAs), in terms of loan growth in terms of margins.

So, even if you have a good managing directors these are the things which comes from the top and these are the sectoral headwinds. After today’s run-up the stock trades at around 1 times price to book. I don’t think that return on equities (ROEs) are going to be any materially different at least for next two or three years. So at this point in time I still remain slightly negative on the stock. We have a hold rating and we continue to maintain that.

Sumaira: In that case am I too hopeful in asking you whether any other stock could see a re-rating post this?

A: This plan is compilation of the announcement done by government over a past three to four months. I don’t see anything new in the overall scheme of thing. Capital was already announced earlier, Bank Board Bureau will get operational from April 1st, 2016. It is a structural problem. I mean nobody from the private sector wants to lose out the hefty pay packages which are into millions and take very challenging role of PSU.

It is not only about money it is also about the processes, it is also about the culture; it is also about the people who are employed. One man cannot change 10,000 employees, it is very difficult. So until and unless you see change in terms of broad based structural reforms across the organisation, it is difficult to conclude that things will change in a very drastic manner.

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