Shares of banking companies suffered a rout on Monday, with the CNX Bank index registering the sharpest single-day fall in the last six years. The CNX Bank index lost 1,245.40 points, or 6.9%, during the session on Monday.
Public sector banks were the worst hit as the CNX index for PSU banks slumped 9.35%. Bank of India was the biggest loser in the banking universe as its shares declined 16.4% to settle at Rs 139.20 a share.
ICICI Bank – India’s largest private sector lender — lost 9.24% to hit the lowest in 52 weeks. The session was no better for State Bank of India — India’s largest lender — as its scrip fell 8.82%.
Experts said the banking sector’s prospects in the near term look bleak. “I don’t think the worst is over yet. Due to the deflationary pressure, the pain is likely to continue going forward. Even the issue of non-performing assets is not going to be sorted out in the next three quarters,” said Gopal Agrawal, CIO, Mirae Asset Global Investments (India).
Senior officials in the industry said private sector banks are expected to do better than public sector banks. “This has been the strategy for the past few months and we are still overweight on private banks. We will need more clarity on NPAs of public sector banks before we start looking to invest in them,” said a fund manager.
However, the selloff is going to continue for the next few sessions, experts said, adding things might improve if RBI reduces the benchmark lending rate.
“In the light of lower inflation, RBI could indeed take an aggressive position. Since the US Fed has not increased rates for now, RBI could reduce the repo rate ahead of the policy review,” said Deven Choksey, MD, KR Choksey Group.
Reports indicate that the credit situation in PSU banks is poor. On the other hand, the asset quality of Indian banks has been constantly deteriorating. Last week, finance minister Arun Jaitley announced a revival plan for PSU banks.
The strategy included infusion of fresh capital into banks and reducing NPAs. As per official data, stressed assets constitute 11.1% of total assets of Indian banks.