Nifty Bank index falls 2%; RBL, Bandhan, HDFC Bank down over 3%

India Ratings and Research has revised its outlook on the banking sector to 'Negative' for H2FY21.

Banking shares were under pressure with the Nifty Bank index falling 3 per cent from its intra-day high on Friday, after rating agency India Ratings and Research (Ind-Ra) revised its outlook on the banking sector to ‘Negative’ for the second half – October to March (H2FY21) from ‘Stable’.

Bandhan Bank, RBL Bank, HDFC Bank, and IDFC First Bank were down 3 per cent, while Federal Bank, State Bank of India (SBI), Punjab National Bank, and IndusInd Bank from the index were down in the range of 1 per cent to 2 per cent on the National Stock Exchange (NSE).

At 02:42 pm, the Nifty Bank index was the top loser among sectoral indices. The index was down 1.9 per cent at 21,895 points, as compared to a 0.35 per cent decline in the Nifty 50 index. The bank index hit an intra-day low of 21,785, down 3 per cent from its intra-day high level of 22,469 points.

The negative outlook is in view of an expected spike in stressed assets, higher credit costs, weaker earnings on account of interest reversals and lower fee income, and muted growth prospects in the wake of the measures taken to contain the spread of Covid-19. Additionally, capital buffers for most public sector banks (PSBs) remain modest, As per Ind-Ra’s bear case, the spike in stressed assets due to pandemic is expected to double the credit costs for the banking system than estimated pre-Covid-19 levels for FY21.

Ind-Ra has maintained a Stable outlook for private banks, as they are better placed to withstand the challenges presented by the pandemic. Most large banks have strengthened their capital buffers, built contingent provisions, and have been proactive in managing the loan portfolio, it said.

While the system’s credit growth could remain anaemic, and short-term financial performance could deteriorate modestly, large banks may benefit from credit migration. As opportunities arise, these banks are in a position to gain substantial franchise growth in the medium term, given that they have also added to their capital buffers over the past few months, Ind-Ra said.