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FIIs trim their holdings in 12 private banks in second quarter of FY20

Within the BSE-500 universe, mid-sized private banks are the ones to see deeper cuts in FII stakes

Jash Kriplani  |  Mumbai 

FIIs turn traders on Dalal Street

(FIIs) have trimmed their holdings in 12 private banks in the September quarter amid concerns over a build-up of stress in mid-sized companies and small and medium enterprises (SMEs).

Within the BSE-500 universe, mid-sized private banks are the ones to see deeper cuts in FII stakes. For instance, Karnataka Bank saw its FII stake reduced by 167 basis points (bps) to 13.7 per cent in the September quarter from 15.37 per cent in the June quarter.

Federal Bank (246 bps), City Union Bank (133 bps), ICICI Bank (117 bps), HDFC Bank (80 bps), DCB Bank (43 bps), Kotak Mahindra Bank (37 bps), and RBL Bank (20 bps) are the other banks in which have pruned their stakes.

Among the above, DCB Bank and Karnataka Bank have reported a rise in slippages in the SME loan book in the September quarter.

Management commentary from some of the other private banks also pointed to pressure in SMEs owing to delayed payments by borrowers.

In a recent note, foreign broking house Macquarie pointed out that some foreign investors held an “all-round pessimistic” view of Indian banks.

FIIs trim their holdings in 12 private banks in second quarter of FY20

“Investors are worried about second order impacts from new stress emerging in the mid-corporate and SME space, as well as rub off effect on retail asset quality,” the Macquarie note read.

The report was based on interactions with 40-odd investors based out of Singapore and Hong Kong.

Analysts say the slowdown in the economy is likely to weigh on the SME segment, and this will, in turn, have a negative impact on banks with loan exposures to such companies.

For private banks, the share of non-performing assets in advances to MSMEs has increased to 2.91 per cent in 2018-19 from 2.69 per cent in the previous financial year.

Analysts say compared to bigger banks, mid-sized banks will find it more challenging to deal with large spikes in stress levels.

“Not only are mid-sized banks finding it difficult to sustain higher levels of growth, the risks to their asset quality remain high. So, would take a short-term cautionary view of such banks,” said Abhimanyu Soufat, head of research, IIFL.

He added that bigger private banks would seem more attractive because these were expected to see lower slippages, and an overall improvement in asset quality.

Meanwhile, seem to have raised their bets in some state-owned banks. In Punjab National Bank (PNB), the FII stake has increased by 13 bps to 3.45 per cent. Similarly, it has increased by 27 bps to 4.5 per cent in Canara Bank. Within the BSE-500 universe, FIIs have increased their stakes in eight public-sector banks.

Experts say state-run banks now look better-placed to gain market share because NBFCs have lost their growth momentum.“Competitive intensity from PSU banks to rise after re-capitalisation and merger,” Jefferies said in a note.

“Some of these stocks are trading at half their book value. Also, there is more clarity on slippages coming down,”

Soufat added.

Union Finance Minister Nirmala Sitharaman in August announced merging 10 public-sector banks into four and identified the stronger banks for acting as anchors. Earlier, the minister had announced Rs 70,000 crore of capital infusion into public-sector banks.

First Published: Mon, October 28 2019. 21:56 IST