Banking shares touched new lows on Thursday as the sectoral gauge for banking shares in the BSE closed in the red for the fifth straight session. The BSE Bankex lost 3.81% during the sessions as shares of banks declined in the range of 1.3%-5.8%, data from stock exchanges showed.
State Bank of India (SBI) shares declined close to 4% after the public lender announced the earnings for quarter ending December. The net profit of SBI for the October-December quarter fell 62% year-on-year(y-o-y) because of a jump in provisions and bad loans. Shares of Union Bank – another public sector lender who announced results on Thursday – lost a little more than 3.2% during the session. The bank reported 74% decline in net profit y-o-y.
Kotak Mahindra Bank was the biggest loser among the lenders as its shares fell by 5.7% during the session. Shares of Punjab National Bank (PNB) and Axis Bank declined 4% each. PNB’s shares slumped close to 9% during the previous session as the public sector lender’s profit for the three months to December plunged 93% y-o-y to `51 crore due to higher provisions. Further, PNB reported slippages worth `17,250 crore – roughly equal to its market capitalisation.
The provisions of banks have gone up considerably in the quarter ending December after Reserve Bank of India(RBI) asked banks to reclassify certain assets and provide sufficiently provide for them. Provisions of most of the banks have gone up in Q3FY16. Even private lenders like ICICI Bank and Axis Bank have reported rise in provisions for the quarter ending December.
Domestic brokerage Kotak Institutional Equities said in a research report that the RBI’s initiative to provide banks with better tools to deal with problematic assets is a welcome move.”However the 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.
Banking shares have been under selling pressure since the beginning of the CY2016. The BSE Bankex has lost more than 17% since the beginning of the year.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 `5 lakh crore in January 2015 crashed to less than `2.6 lakh crore. That’s just slightly more than the market capitalisation of HDFC Bank of `2.46 lakh crore, Bloomberg data showed.