No SVB-like scenario in India; banks are on a strong footing, say analysts

The sell-off in the banking pack, analysts said, was a knee-jerk reaction to the developments with US-based Silicon Valley Bank (SVB) that announced a share sale to shore up its finances

Banking stocks came under heavy selling pressure on Friday with the Nifty Bank index, a gauge of performance of the baking stocks on the NSE, slipping nearly 2 per cent in intra-day deals. In contrast, the Nifty50 index lost nearly 2 per cent.

The broad-based sell-off in the banking pack, analysts said, was a knee-jerk reaction to the developments with US-based Silicon Valley Bank (SVB) that announced a share sale to shore up its finances, following a significant loss on its portfolio. 

SVB Financial Group – the parent company of SVB – sold $21 billion worth of securities from its portfolio. The move was triggered by high deposit outflows at the bank due to a broader downturn in the startup industry, reports suggest.

According to G Chokkalingam, founder and chief investment officer at Equinomics Research & Advisory, the fall in the Indian banking stocks is a knee-jerk reaction to the development in the US, which he feels can be used to accumulate quality stocks from a long-term perspective.

“The sharp fall in the bank stocks is merely a knee-jerk reaction to the development in the US, which should fizzle out soon. There is nothing fundamentally worrying with the Indian banks. A recent Assocham study also suggests that the gross non-performing assets (NPAs) will be at a decadal low by 2024. That apart, domestic banking credit could grow around 15 per cent, which is a decadal high. While the share of the industry in this credit growth is declining, consumer loans – considered more stable – are picking up pace,” he said.

Back home, the Nifty PSU Bank index was among the worst hit and lost 2.5 per cent during trade on Thursday. The Nifty Private Bank index, too, slipped around 2 per cent. Among stocks, Bank of Baroda was the top loser that slipped 3.1 per cent during intra-day deals. Punjab National Bank (PNB), Axis Bank, HDFC Bank, State Bank of India (SBI) and IDFC First bank were the other prominent losers that skidded over 2 per cent each.

Suman Bannerjee, chief investment officer at Hedonova, a US-based hedge fund, too, suggests that the Indian banking system remains on a strong footing. He, however, expects the Nifty Bank index to head lower, which he says will present a good opportunity to buy banking stocks.

“The Indian banking system is much insulated from global headwinds. Indian banks don’t lend to foreign companies outside selected West Asian companies. Net foreign lending is less than 4 per cent of the lending book and the entire book is hedged using currency, swaps and interest-rate swaps. The most important metric to watch out now is the net interest margin. What we are seeing right now in the broader markets is a 'bull trap'. Technically, the Nifty Bank index has a strong support at 39,500 levels, which it is likely to break soon. I would prefer accumulating stocks at around 36,000 on the Nifty Bank index,” Bannerjee said.

Chokkalingam, too, suggests investors remain selective in the banking space and prefers Bank of Baroda, HDFC Bank and Bank of Maharashtra in this segment.

“Axis Bank is also a good tactical buy. But the bank may need to write-off outstanding dues post the acquisition of Citibank's consumer business. I suggest investor's wait for the March 2023 quarter results before buying this stock,” he said.