PSU banks mixed, private sector banks edge lower

Shares of public sector banks witnessed a mixed trend and private sector banks edged lower at 11:20 IST on BSE after the Reserve Bank of India in its latest Financial Stability Report flagged concerns over the rising bad loans in Indian banks.

Shares of public sector banks (PSBs) were mixed. IDBI Bank (down 1.74%), Punjab National Bank (down 0.45%), United Bank of India (down 0.45%), Syndicate Bank (down 0.23%), and Central Bank of India (down 0.21%) edged lower. Indian Bank (up 0.89%), Corporation Bank (up 0.59%), Indian Overseas Bank (up 0.32%), Bank of Baroda (up 0.32%), Bank of India (up 0.17%) and Canara Bank (up 0.08%) edged higher.

State Bank of India (SBI) shed 0.28% to Rs 229.25. The stock hit high of Rs 231.15 and low of Rs 228.50 so far during the day. SBI before market hours today, 24 December 2015, announced that the bank has raised Rs 4000 crore on private placement of Basel III compliant, Tier-II bonds with 10 year tenure, bearing 8.33% per annum coupon and with call option after 5 years. The announcement was made before market hours today, 24 December 2015.

Private sector banks edged lower. ICICI Bank (down 0.69%), IndusInd Bank (down 0.34%), Kotak Mahindra Bank (down 0.28%) and HDFC Bank (down 0.06%) edged lower. Axis Bank (up 0.19%) edged higher. Shares of Yes Bank were unchanged at Rs 725.

Meanwhile, the S&P BSE Sensex was up 4.07 points or 0.02% at 25,854.37. It outperformed the S&P BSE Bankex index which was down 47.87 points or 0.25% at 19,238.84.

The Reserve Bank of India (RBI) in its latest Financial Stability Report (FSR) said that PSBs pay out significant amounts as dividend to the government and other shareholders which have no relevance to their balance sheet strengths and capital planning. In addition to the improvement of governance processes through initiatives like 'Indradhanush', PSBs may need to review their business models and examine strategic decisions like capital structure and dividend policy, the FSR said. In August 2015, government rolled out a seven pronged plan named Indradhanush aimed at improving the performance of PSBs. It is imperative that PSBs approach their dividend decisions as strategic business decisions which are in keeping with their objective of shareholder wealth maximisation, the FSR said.

RBI said that large borrowers continued to be the biggest sore point for banks' balance sheets. In its report, RBI pointed out that PSBs were the worst hit with gross non-performing assets (GNPAs) among large borrowers showing a significant increase to 8.1% in September 2015 from 6.1% in March 2015.

RBI Governor Raghuram Rajan said in his foreword on the FSR that despite domestic inflation coming down significantly, India should not lose sight of the fact that the climatic conditions have tended to be more erratic and unpredictable. This will have an impact on the volatility of inflation and perhaps its level, Rajan said.

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