Bank Scrips Witness Heavy Selling Pressure

Bank scrips witnessed further selling yesterday following the announcement of the credit policy. According to brokers and analysts, bank stocks are unlikely to witness any appreciation in stock prices due to sluggishness in the economy.

The State Bank of India scrip closed at Rs 155.60 (previous close Rs 160.40) on the Bombay Stock Exchange and Rs 157 (Rs 159.10) on the National Stock Exchange. Other losers in the sector included Global Trust Bank at Rs 38.60 (Rs 39.30) and Rs 39.25 (Rs 39.85) on the BSE and NSE, respectively, HDFC Bank at Rs 52.70 (Rs 53.25) and Rs 53.25 (Rs 53.45), Bank of Baroda at Rs 53.00 (Rs 55.90) and Rs 53.60 (Rs 55.60) and Bank of India at Rs 21.30 (Rs 22.10) and Rs 21.45 (Rs 22.10).

Brokers say the outlook for the banking sector is not so positive in the next two years. However, they expect banks to utilise the time effectively for the restructuring time provided for tightening NPA provisions.

Analysts say that banks may have to go for raising money through the market through issuance of capital. "It remains to be seen how banks arrange for funds in a situation where the government equity continues to be on the higher side. There is very little demand for bank paper in the market," Anand Vasudevan, banking analyst at UTI Securities said.

"Bank stocks may look good provided they reform and implement their policy towards non-performing assets. There is also a need for the industrial activity to pick up. Banks and institutions can no longer afford to lend money indiscriminately," a dealer at a leading institutional brokerage said.

Bank and FI scrips have been taking a beating from the market of late on concerns about the sector's inherent weakness. Recently, Moody's Investors Services classified India's average bank financial strength rating as "very weak" and it stands sixtieth amongst the financial systems of 73 countries that were ranked.

The average bank financial strength ratings by country indicates the susceptibility of a financial system to a collapse. A "very weak" rating for India does not augur well.

The Indian financial system is currently plagued with high level of non performing assets. The general feeling in the market is that the NPAs of many of the financial institutions are much higher than published figures and many of the FIs have been camouflaging NPAs by giving fresh debt to service old loans.