The Reserve Bank of India (RBI) recently revised its guidelines allowing banks to treat loans that are under stress as “standard” if the same are considered for restructuring before 31 March 2009.
Our interaction with management of banks in recent weeks has revealed an increase in proposals for restructuring.
According to reports, the Union Bank of India (UBI) is expecting to restructure loans of about 3-4% of its balance sheet in current fiscal.
However, the management clarified that the bank would restructure 3-4% of its advances (and not the balance sheet). Besides the bank expects its bottom line growth to slow down during Q4FY2009.
These factors would act as an overhang on the stock in the near term. At the current market price of Rs140, the stock trades at 4x FY2010E earnings per share and 0.8x FY2010E book value per share.
We maintain our BUY recommendation on the stock with a price target of Rs163.