Banking stocks trade in the green despite RBI guv Urjit Patel's resignation

YES Bank gained most, up 7%, trailed by Punjab National Bank, State Bank of India, and Bank of Baroda

Despite the uncertainty following Reserve Bank of India (RBI) governor Urjit Patel’s exit, majority of banking stocks traded in the green on Tuesday. The rally is particularly true for stocks that have lately come under stringent regulatory surveillance. For instance, leading the pack of gainers was YES Bank with a gain of 7 per cent, trailed by Punjab National Bank, State Bank of India and Bank of Baroda — up 2.7 to 5.7 per cent. Public sector banks (PSBs), whose lending activities have been curbed because of imposition of prompt corrective action (PCA), too, saw their stock prices reacting positively. Corporation Bank, UCO Bank and Dena Bank were up 3–10 per cent on Tuesday.  

Reiterating that it may not be more than a relief rally, Gautam Duggad, head of research at Motilal Oswal Financial Services, said investors could have resorted to short-covering their positions given that these were already the beaten-down names. U R Bhatt, director of Dalton Capital Advisors, said the rally was also in reaction to a breather from the stringent norms some of the banks had been, of late, subjected to. For the PSBs, tightening of restrictions under the PCA earlier this year has affected their core lending activities significantly. Currently, about 11 banks or half of PSBs are under the PCA framework. With restrictions on their lending businesses, these banks are finding it tough to stay afloat. Their dependence on the government’s capital infusion has also increased substantially.

The sector, as a whole, doesn’t have clarity on how some of the troubled power assets should be classified by the banks, following the February 12 circular issued by the regulator. Analysts said if the banks were to further provide for stressed power assets, it would delay improvement in their financials.

Abhimanyu Sofat, vice-president, research at IIFL pointed out that many were not happy with Patel’s measures to infuse liquidity. “His focus on inflation control instead of easing the liquidity crunch hasn’t gone down well with the government, and the banking industry,” he noted.

With Patel’s exit, many are hopeful that some of these concerns would be addressed by the new governor, Shaktikanta Das.