Persistent issues with stressed loans and slow pick-up in credit growth saw foreign funds reduce their ownership in the banking sector for the three months ending June 2015.
Analysis of data compiled from Capitaline showed 20 banks report a quarter-on-quarter (q-o-q) fall in foreign portfolio investors’ (FPI) shareholding, with overseas funds aggressively reducing stake in public sector banks (PSBs). This accounts for 83.3% of the 24 banks in the BSE 500 universe that have so far submitted their latest shareholding data.
Bank of Baroda (BoB), which features among the top five lenders by loan book, saw FPI ownership decline the most among all banking counters. Overseas funds collectively own 13.55% in the bank as on quarter ending June 2015, down 2.98 percentage points (ppt). Oriental Bank of Commerce reported 2.77 ppt drop in FPI shareholding at 9.24%, followed by Canara Bank (-2.41 ppt) at 8.17%. On an average, foreign funds cut their ownership in the banking sector by 0.7 ppt.
Market experts said an increase in the stockpile of bad loans and poor monsoon forecast have largely prompted the selloff.
“The Street expected a weak monsoon spell. In addition, the results in the last quarter were tepid and the economy is taking time to pick up. Banks are dealing with several stressed sectors. In the last three months, nothing much has changed,” said Andrew Holland, CEO of Ambit Investment Advisors.
As per the data released by RBI, stressed loan ratio increased to 11.1% in March 2015, compared to 10.7% in September last year.
Experts say the banking sector will continue to remain stressed for another two to three quarters, especially in revenue growth.
According to HSBC, PSB earnings are expected decline 37% in the first quarter of fiscal 2016. Slower volume growth may cap top line and margin may remain under pressure. While private banks are expected to report better earnings than PSBs, the growth is likely to be lower-than-trend earnings growth of 16%.
“Further deterioration in NPLs is likely to keep credit cost high; weak treasury performance could imply a worse quarter than Q4,” HSBC analysts Tejas Mehta, Sachin Sheth, and Aseem Pant stated in the Q1 earnings preview.
While FPIs trimmed their positions, domestic mutual fund (MFs) increased their stake in 19 banks during the June quarter. Indian asset management companies (AMCs) increased their stake by 1.29 ppt, followed by Federal Bank (1.13 ppt) and Bank of Baroda (0.67 ppt).
India’s equity mutual funds have seen inflows for 14 straight months in June, with inflows of over R32,200 crore in the last three months alone, Association of Mutual Funds in India (Amfi) data showed.
“The mutual fund industry is optimistic on banks in the near term. We expect India to transform from a cash economy to banking economy. Further, there are also expectations that the government will bring new laws to help banks recover NPAs. India is under-penetrated in terms of banks hence there is plenty of scope for banks to grow as well,” said SN Baheti, MD and CEO of IDBI AMC.