Bank stocks tumble; Nifty Private Bank index slips 3%; PSBs buck the trend

The Reserve Bank of India (RBI) is set to meet for the three-day monetary policy meeting between August 4 and 6. Analysts expect the MPC to face dilemma of firmed up inflation and flattering growth

Financial stocks exhibited weakness at the bourses on Monday, with Nifty Private Bank index sliding up to 3.4 per cent on the National Stock Exchange (NSE). The index settled as the top sectoral loser on the NSE, down 2.9 per cent, as against 1.57 per cent decline in the benchmark Nifty50 index. Besides, Nifty Bank index, too, ended 2.8 per cent loweron the NSE.

Individually, Bandhan Bank skid 12 per cent in the intra-day trade to Rs 304 on the BSE after nearly 21 per cent of the bank's equity changed hand on the NSE and BSE via block deals. Approximately 337 million shares, representing 20.97 per cent equity of the bank and worth Rs 10,482 crore, changed hands on the counter at around 9:15 am on the BSE and NSE. The stock closed 10.60 per cent lower on the BSE. READ MORE

That apart, IndusInd Bank, RBL Bank, Axis Bank, and HDFC Bank tanked up to 4 per cent on the NSE. All the 10 constituents of the Nifty Private Bank index ended in the red. As regards Nifty Bank index, 10 of the 12 index constituents ended in the red, with only State Bank of India, and Punjab National Bank settling in the green.

State Bank of India, on Friday, July 31, reported 81.18 per cent year-on-year jump in net profit at Rs 4,189.34 crore for June quarter of FY21 (Q1FY21) supported by a one-time gain from stake sale in SBI Life for Rs 1,539.73 crore. On a quarterly basis, the net profit grew 17 per cent from Rs 3,580.8 crore reported in March quarter of FY20. 

Besides, the public sector bank’s net interest income (NII) – the difference between interest earned and expended – came in at Rs 26,641.6 crore, clocking a 16.1 per cent growth on a yearly basis from Rs 22,938.8 crore. The same was Rs 22,766.9 crore in Q4FY20. Domestic Net Interest Margin (NIM) improved to 3.24 per cent in Q1FY21, registering an increase of 23 bps YoY.

"SBI reported strong operating performance in a challenging environment. We believe that SBIN has prudently improved PCR over the last few years and has one of the lowest stressed assets amongst corporate banks. The proportion of moratorium book has improved further to 9.5 per cent of terms loans. Further, the moratorium proportion is the lowest v/s peers. We, thus, upgrade our earnings estimate for FY21/FY22E by 8 per cent/9 per cent as we factor in higher NII growth. However, credit cost trends should remain high for FY21E, and thus, we estimate RoA/RoE of 0.5 per cent/9.6 per cent by FY22E," said analysts at Motilal Oswal Financial Services. The brokerage maintains 'Buy' with target price of Rs 285.

Those at ICICI Securities, meanwhile, believe that SBI is a beneficiary of liquidity with huge deposit inflow in these uncertain times of Covid-19. "Also, stake sale in strong subsidiaries like SBI Cards, SBI Life boosted capital, avoiding equity dilution. Provisions for legacy stress is nearly over but Covid-19 may keep credit cost elevated. High deposit growth for SBI may stay in near term. Expect loan CAGR at 7.5 peer cent & deposit CAGR of 8.4% in FY20-22E to Rs 26.9 lakh crore, Rs 38.1 lakh crore, respectively," they said in a result update.

The Reserve Bank of India (RBI) is set to meet for the three-day monetary policy meeting between August 4 and 6. Analysts expect the Monetary Policy Committee (MPC) to face dilemma of firmed up inflation and flattering growth. 

A Business Standard poll of 10 economists and bond market participants does not come to a conclusion as to whether the RBI would cut rates or exercise a pause. There are some expectations of a cut on the reverse repo side and there may be further liquidity enhancing measures, but there is no consensus. The bias, though, seems to be towards a pause. Out of the 10, three expected a cut, while seven said there would be a pause. All the three bond market participants polled expected a pause. READ HERE

PSBs buck the trend

Nifty PSB Index was, however, gained 1.6 per cent in the intra-day trade after the RBI asked the government to bring down the it’s stake in six leading public sector banks to 51 per cent over the next 12 to 18 months. 

State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, Union Bank of India, and Bank of India have been shortlisted for this. Sources familiar with the developments said during discussions on the government’s move to monetise its holdings in PSBs, the RBI had expressed concern on complete privatisation in the immediate future. READ HERE

The index closed 0.54 per cent higher on the NSE in an otherwise weak market.