Domestic brokerage Kotak Institutional Equities said in a note to investors that the banking sector would continue to be stressed for the next few quarters.
The Bank Nifty plunged to a new 52-week low as shares of banks and financial institutions declined in the range of 2%-13% on Wednesday.
This fall was owing to below-expected December quarter results of most public sector banks (PSB), which reported a jump in non-performing assets. The Bank Nifty declined 286.65 points or 1.93% as shares of 11 out of 12 banks comprising the sectoral index closed in the red.
Shares of Punjab National Bank, Central Bank of India, Allahabad Bank and Dena Bank – which announced their Q3 results on Tuesday – touched new lows during the session.
Shares of Punjab National Bank slumped close to 9% during the session. The public sector lender’s profit for the three months to December plunged 93% year-on-year (y-o-y) to Rs 51 crore due to higher provisions. Further, PNB reported slippages worth Rs 17,250 crore – roughly equal to its market capitalisation.
Shares of Central Bank dived more than 12% during the session and also touched a life-time low of Rs 53.50 intraday. Central Bank reported a net loss of Rs 837 crore for the quarter ended December on the back of a 114% y-o-y increase in provisions.
Shares of Allahabad Bank declined close to 10%, while Dena Bank was down 7.5% on Wednesday.
Provisions of banks increased considerably in the quarter ending December after the RBI asked banks to reclassify certain assets and provide sufficiently for them. Provisions of most of the banks went up in Q3FY16. Even private lenders such as ICICI Bank and Axis Bank reported rise in provisions for the quarter ending December.
Domestic brokerage Kotak Institutional Equities said in a note to investors that the banking sector would continue to be stressed for the next few quarters. “Impairment is the largest challenge today and banks would be able to clean up their balance sheet by FY2017.A key risk remains in the extent of promoters involvement if banks declare a large share of these assets impaired as a resolution through court arbitrated process is lengthy and reduces recovery rates,” the brokerage said in the report. The existing stress on banks’ books — expected to result in a deteriorating earnings profile — has left the price to book value (PBV) of most public sector banks at near two-year lows.
The market capitalisation for state-owned lenders as a whole, which was Rs 5 lakh crore in January 2015, crashed to Rs 2.6 lakh crore. That’s just slightly more than the market capitalisation of HDFC Bank at Rs 2.56 lakh crore, Bloomberg data showed.