Asset quality concerns weigh, Bank Nifty loses 1,000 pts in 6 sessions

Written by fe Bureau | Mumbai | Updated: Jan 31 2014, 18:51pm hrs
NiftyAnalysts feel that higher contribution of non-core income to banks? earnings is another cause of worry. Reuters
Bank Nifty, which comprises 12 banking stocks, has fallen 1,054.2 points, or 9.4%, in the last six trading sessions as third quarter numbers have failed to douse concerns over asset quality stress.

The fall in the Bank Nifty has been higher than that of the benchmark NSE Nifty, which corrected 4.18%, or 265.25 points, in the last six sessions.

Brokerages feel investing in the banking sector could be risky in the near term. Incremental stress asset formation is likely to remain high in FY14/15. Capital requirement is a big worry for PSU banks. We maintain our near-term cautious stance on the sector and would prefer playing the sector through private sector banks, said Macquarie in a recent note.

ICICI Bank, the largest private sector lender, reported net non-performing assets of Rs 3,121 crore for quarter ended December, a 15.29% rise over previous quarter.

Slippages were 1.5% of loans while fresh loans restructured were at 2.5% of loans. Management highlighted that the loan portfolio continues to display stress in the corporate book, said Kotak Institutional Equities in a research report.

All Bank Nifty stocks have declined in the current calendar year. Among private sector lenders, Axis Bank (-14.68%), ICICI Bank (-11.30%), Yes Bank Ltd (-17.25%) and IndusInd Bank Ltd (-10.04%) have been the top losers. Experts feel corporate lending is likely to remain risky.

In the absence of a recovery, we expect SME and mid-corporate credit quality to remain weak. Large-corporate risk is back on the table as little deleveraging has taken place, either through capital raising or asset sales. Performance of restructured assets is likely to disappoint and power sector issues remain unresolved. Personal lending should remain relatively safe. This sector has not seen a boom and is unlikely to experience a bust, said Barclays analysts in a note.

Analysts feel that higher contribution of non-core income to banks earnings is another cause of worry. We have seen a relatively higher contribution of non-core income in this quarter, said Alpesh Shah, banking analyst, Motilal Oswal Financial Services. The surprise repo rate hike has put bank stocks under further pressure, added Shah.

PSU banks have fared worse than their private sector counterparts. SBI

(-14.15%), BOB (-17.69%), PNB (-17.38%) and BOI (-21.87%) have been the top losers in the current calendar year.

The pool of restructured assets continues to grow and is likely to add to NPAs over time. The PSU banks are also unlikely to make full use of the opportunity to improve NIMs. We downgrade our ratings on PNB, BOB and BOI, added Barclays analysts.