Bankex slips 7.75%, HDFC Bank worst hit

HDFC Bank tumbled 11 per cent to Rs 918.15 per share, making it the second-worst performer today among the Sensex stocks. ICICI Bank, India's second-largest lender, declined 8.6 per cent to Rs 529.15, its lowest in almost two years.

A bearish outlook on the banking stocks, as seen in sharp erosion in their values, is reflection of pressure on margins (net interest margins) due to increase in cost of deposits.

The Bankex closed at 5,508, down 462 points over its previous close of 5,970 points on Monday.

The hammering is not restricted only to the Indian banking stocks, it was seen worldwide, more in response to fragile health of US banks.

The banks, especially the public sector banks, are expected to book significant mark-to-market losses on part of the bond portfolio. The provisioning for erosion in values will make a dent in net profits, an analyst with a mid-size brokerage said.

While the central bank raised interest rates twice to curb demand and inflation (at a 13-year high). Inflation is likely to rise further and that may lead to the central bank tightening rates further, leading to a slower loan growth and higher bad debt.

Loan growth has been around 26.3 per cent in the first three months of this year, compared with 24.6 per cent a year earlier.

State Bank of India, the largest bank in the country, fell 6.1 per cent to Rs 1,181.8.

Fitch Ratings' decision to lower outlook on India's long-term local currency rating today also hurt these stocks. It cut the credit outlook to negative from stable, on concern that rising subsidies, interest payments and wages may weaken the government's finances.