Slowdown in the credit growth of banks and concerns over stressed assets have prompted foreign institutional investors (FIIs) to trim their ownership in the Indian banking universe to multi-year lows.
According to the shareholding data for the September quarter compiled by Capitaline data, FII ownership in 14 out of 21 banks is at the lowest point in more than three years without any key difference between public and private sector banks. These lenders include HDFC Bank, Bank of Baroda, Canara Bank, Punjab National Bank, Indian Overseas Bank, and Bank of India.
Ownership of FIIs in HDFC Bank stood at 32.4% as on quarter ended September – the lowest since September 2012, while the same in ICICI Bank was at 38.21% – the lowest in the last eight quarters. FII holding in Axis Bank was at 42.13%, the lowest in the previous ten quarters.
Experts said FIIs remained wary of their investments in public sector banks (PSBs) in the last three-four years. The stressed economy has led to increase in the bad loans of public sector banks. Draining capital flows is another challenge that these lenders are currently facing.
According to UR Bhat, director, Dalton Capital Advisors, the slowdown in India’s economic growth have had an impact on the business performance of banks. “It is already evident in the credit growth data which was released recently. It is after quite some time that we have been seeing a single digit credit growth. Public sector banks are facing a huge capital crunch. Although the government has announced numerous plans including infusion of Rs 70,000 crore of fresh capital into the PSU banks, the measures taken would not be sufficient, given the growth opportunities,” Bhat said.
Overseas funds hold a total of 10.37% in State Bank of India. This is the lowest since the quarter ended March 2013. South Indian Bank witnessed the steepest fall of 8.82 percentage points (ppt) from the previous quarter at 19.34% as on three-month ended September 2015 – the lowest in more than four years. Federal Bank saw a drop of 3.84 ppt to 42.27% as on September 2015.
Analysts said corruption and issues of corporate governance in Indian banks, especially PSBs, have also discouraged FIIs from long-term investments in the banking sector.
Earlier during the week, an alleged foreign exchange scam by Bank of Baroda worth close to Rs 6,000 crore came into light. In November 2013, SBI had initiated an internal probe on allegations of bribery against its deputy managing director Shyamal Acharya. Acharya was not found with any major faults in transaction relating loan to company belonging to a Delhi-based business group.
According to IDFC Institutional Securities, “Loss of reputation, but no financial loss to BoB from this event… Repeated incidents of frauds, mostly export related, would be an additional negative for all these banks.