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Bank stocks slide as RBI announces new methodology for computing lending rates

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After seeing a bout of volatility in early trade, key benchmark indices extended losses in morning trade. At 10:17 IST, the barometer index, the S&P BSE Sensex, was down 99.12 points or 0.38% at 25,704.66. The Nifty 50 index was down 29.70 points or 0.38% at 7,814.65. The Sensex fell 117.64 points or 0.45% at the day's low of 25,686.14 in morning trade. The barometer index fell 14.27 points or 0.05% at the day's high of 25,789.51 in early trade. The Nifty fell 35.15 points or 0.45% at the day's low of 7,809.20 in morning trade. The index fell 8.20 points or 0.1% at the day's high of 7,836.15 in early trade.

The market breadth indicating the overall health of the market was positive. On BSE, 1,061 shares rose and 892 shares fell. A total of 130 shares were unchanged. The BSE Mid-Cap index was currently up 0.24%. The BSE Small-Cap index was currently up 0.08%. Both these indices outperformed the Sensex.

In overseas stock market, Asian stocks witnessed a mixed trend. Energy and materials sectors led losses for US stocks yesterday, 17 December 2015, as crude oil prices posted their lowest settlement in nearly seven years.

Bank stocks edged lower after the Reserve Bank of India (RBI) released the final guidelines on computing interest rates on advances of commercial banks based on the marginal cost of funds. Among state-run banks, United Bank of India (down 0.88%), IDBI Bank (down 0.57%), Bank of Baroda (down 0.44%), Allahabad Bank (down 0.43%), Dena Bank (down 0.36%), Indian Bank (down 0.31%), Vijaya Bank (down 0.29%), Andhra Bank (down 0.24%), Punjab National Bank (down 0.2%), Bank of Maharashtra (down 0.16%), State Bank of India (down 0.11%), UCO Bank (down 0.11%) and Bank of India (down 0.09%) edged lower. Canara Bank (up 0.08%), Corporation Bank (up 0.25%), Syndicate Bank (up 0.29%), Central Bank of India (up 0.36%) and Union Bank of India (up 0.64%), edged higher.

Among private sector banks, HDFC Bank (down 0.63%), Kotak Mahindra Bank (down 0.51%), IndusInd Bank (down 0.44%), City Union Bank (down 0.33%), Federal Bank (down 0.27%) and ICICI Bank (down 0.24%), edged lower. Yes Bank (up 0.35%) and Axis Bank (up 0.57%), edged higher.

According to the new rules, all rupee loans sanctioned and credit limits renewed from 1 April 2016 will be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark of a bank for such purposes. The MCLR will be a tenor linked internal benchmark. The actual lending rates will be determined by adding the components of spread to the MCLR. Banks will review and publish their MCLR of different maturities every month on a pre-announced date.

Further, banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR. The periodicity of reset shall be one year or lower. The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period.

Existing loans and credit limits linked to the base rate may continue till repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the Marginal Cost of Funds based Lending Rate (MCLR) linked loan at mutually acceptable terms. Banks will continue to review and publish the base rate as hitherto, RBI said.

HDFC was down 0.61% to Rs 1,234.30. HDFC after market hours yesterday, 17 December 2015, announced that it has agreed to sell 12.33 crore shares representing 22.902% stake held in HDFC ERGO General Insurance Company (HDFC ERGO), a subsidiary of the company, to ERGO International AG, Dseldorf at a price of Rs 90.973 per share aggregating Rs 1122 crore. As on 31 March 2015, HDFC held 73.634% stake in HDFC ERGO. Post completion of the transaction, HDFC and ERGO will hold 50.732% and 48.742% stake in HDFC ERGO, respectively. HDFC ERGO will continue to remain a subsidiary of HDFC. This transaction values HDFC ERGO at Rs 4900 crore. HDFC ERGO reported net profit of Rs 104 crore on total income of Rs 1990.66 crore in the year ended 31 March 2015 (FY 2015). ERGO is the joint venture partner with HDFC in HDFC ERGO.

Shares of oil exploration and production (E&P) companies edged lower as global crude oil prices fell yesterday, 17 December 2015. Reliance Industries (down 0.78%), Cairn India (down 1.04%) and ONGC (down 0.42%) edged lower. Oil India was up 0.13%. Lower crude oil prices would result in lower realization from crude sales for oil exploration firms.

Shares of public sector oil marketing companies (PSU OMCs) edged higher as global crude oil prices fell yesterday, 17 December 2015. Indian Oil Corporation (up 0.07%), BPCL (up 0.08%) and HPCL (up 0.05%) edged higher. Lower crude oil prices could reduce the under-recoveries of PSU OMCs on domestic sale of LPG and kerosene at government controlled prices. The government has already freed pricing of petrol and diesel.

In the global commodities markets, Brent for February settlement was currently up 7 cents at $37.13 a barrel. The contract had fallen 33 cents or 0.88% to settle at $37.06 a barrel during the previous trading session.

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First Published: Fri, December 18 2015. 10:18 IST