Banks tumble after RBI releases FSR

Thirteen bank shares fell by 0.09% to 1.58% at 12:10 IST on BSE after the central bank said in a report that the risks to the banking sector have further increased since June this year.

Union Bank of India (down 1.58%), Federal Bank (down 1.24%), Canara Bank (down 1.19%), Yes Bank (down 0.95%), Punjab National Bank (down 0.87%), Kotak Mahindra Bank (down 0.79%), ICICI Bank (down 0.78%), IDBI Bank (down 0.76%), IndusInd Bank (down 0.58%), Bank of Baroda (down 0.58%), State Bank of India (down 0.45%), AXIS Bank (down 0.1%) and HDFC Bank (down 0.09%), edged higher.

The S&P BSE Bankex was down 0.37% at 13,024.66. It underperformed the Sensex, which was up 0.03% at 21,199.83.

The S&P BSE Bankex had outperformed the market over the past one month till 27 December 2013, rising 5.07% compared with the Sensex's 3.79% rise. The index had also outperformed the market in past one quarter, gaining 15.86% as against Sensex's 7.43% rise.

The Reserve Bank of India (RBI) in its Financial Stability Report (FSR) - December 2013 released today, 30 December 2013, said that the risks to the banking sector have further increased since the publication of the previous FSR in June this year. All major risk dimensions captured in the Banking Stability Indicator show increase in vulnerabilities in the banking sector. Failure of a major corporate or a major corporate group could trigger a contagion in the banking system due to exposures of a large number of banks to such corporates.

Asset quality continues to be a major concern for Scheduled Commercial Banks (SCBs). The Gross Non-performing Assets ratio of SCBs as well as their restructured standard advances ratio have increased. The total stressed advances ratio rose significantly to 10.2% of total advances as at end September 2013, from 9.2% of March 2013. Five sectors viz. Infrastructure, Iron & Steel, Textiles, Aviation and Mining together contribute 24% of total advances of SCBs, and account for around 53% of their total stressed advances.

Macro stress tests on credit risk suggest that if the adverse macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, under improved conditions, the present trend in credit quality may reverse during the second half of 2014-15, the RBI report said.

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