Public sector banks (PSBs) were in focus on Friday, with Nifty PSU Bank index gaining more than 3 per cent on the National Stock Exchange (NSE), on expectation that the banks would benefit from lower yields on government bonds.
At 10:45 am, Nifty PSU Bank index was trading as the top gainer among key sectoral indices, and was up 3.2 per cent, as compared to a 0.64 per cent rise in the benchmark Nifty50 index.
Among individual stocks, Punjab & Sind Bank, Bank of Baroda and Punjab National Bank (PNB) gained more than 4 per cent each, while Canara Bank, Union Bank of India, State Bank of India (SBI) and Indian Bank were up in the range of 2 per cent to 3 per cent on the National Stock Exchange (NSE).
The Reserve Bank of India (RBI), in a notification, said on Thursday that it will purchase 10-year bonds worth Rs 10,000 crore, while simultaneously sell four bonds maturing in 2020 for up to the same amount on Monday, December 30 in the open market. It conducted a similar operation earlier this week. READ HERE
In effect, higher liquidity would pull the yields down. This, in turn, would mean higher treasury profits on the bond portfolios for banks.
The 10-year yield slid 7 basis points to 6.51 per cent on Friday, taking the weekly decline to nine bps, following the RBI's comment that it will buy long-end debt for a second week. The central bank has stepped up the pace of its unconventional policy to lower borrowing costs, news agency Bloomberg reported.
That apart, rating agency ICRA said overall net non-performing assets (NPAs) of the banking sector are likely to improve to 3.2-3.3 per cent by the end this fiscal from 3.7 per cent in September 2019, aided by better recoveries and declining slippages.
"With sizeable capital infusion in public sector banks and accelerated provisions, their NNPAs declined sharply to 4.8 per cent as on September 30, 2019 from 7.2 per cent as of September, 2018 and 4.9 per cent as on March 31, 2019... With reduction in net bad loan levels, credit provisions for banks are expected to decline to 1.6-1.8 per cent of advances in the current fiscal and 0.8-0.9 per cent during FY2021 from 3.6 per cent during FY2019," news agency PTI reported, quoting the ICRA report.
The decline in the credit provisions will largely be driven by state-run banks with their provisioning declining to 2.1-2.3 per cent in FY20 and to 1-1.1 per cent in FY21 from 4.4 per cent during FY19, it added. CLICK HERE TO READ FULL REPORT