Banking shares were among the biggest losers on Friday, led by a sizable fall in PSU bank stocks after the State Bank of India (SBI) reported higher provisioning for bad loans in its Q2 earnings. The country’s largest lender brought asset quality concerns to the fore by reporting a 5.15% increase in gross NPAs for the three months ended September. SBI’s gross NPAs increased 4.99% in Q1FY13 and 4.19% in Q2FY12.
In absolute terms, gross NPAs in Q2FY13 stood at R49,202.46 crore. SBI also disappointed on the margin front, as net interest income fell 1% to 5%. In absolute terms, the net interest income stood at R10,973 crore. Market experts said SBI's Q2 numbers were below expectations and largely disappointed on the NPA front. In addition, the 30% rise in quarterly profit was also the smallest increase this year, as higher provisioning limited earnings growth.
On the National Stock Exchange (NSE), shares of SBI closed at R2,153.15, down R89.15, or 3.98%. More than 75.47 lakh shares were traded on the Bombay Stock Exchange (BSE) and the NSE. Shares of Union Bank declined R8.45, or 3.56%, to R229.50. Bank of India, Canara Bank, ICICI Bank, Kotak Mahindra Bank, Bank of Baroda and Punjab National Bank ended down in the range of 1-3%. The Bank Nifty ended the day at 11,475.60, down 137.95 points, or 1.19%.
Analysts were of the view that asset quality problems — especially in case of public sector banks — continue to be an issue and several public sector banks could see a downward revision in their ratings.
“We expect the stock (SBI) to underperform in the short term on back of deteriorating assets quality and lower operating performance,” said Rikesh Parikh,vice-president, equities, Motilal Oswal Securities, who valued SBI at P/BV of 1.2x of FY13e consolidated BV of R1,773, and 1x FY14e consolidated BV of R2,043.
Earlier this week, state-owned Allahabad Bank reported a y-o-y drop of 25% in Q2FY13 net profit as higher provisions against bad loans eroded the lender's profit margin. On October 26, Punjab National Bank had reported a 40% increase in Q2 gross NPAs on a sequential basis. In absolute terms, gross NPAs stood at over R14,000 crore and were the highest among Indian banks during Q2FY13.
The significant deterioration in asset quality has also got the Reserve Bank of India (RBI) worried. On Thursday, the RBI said that banks needed to strengthen their due diligence, credit