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    BSE Bankex cracks 919 points as EMI moratorium ends. What’s next?

    Synopsis

    All the components in the banking index settled in the red with City Union Bank falling the most.

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    All the components in the index settled in the red with City Union Bank falling the most
    With the six-month EMI moratorium ending today, BSE Bankex fell over 3 per cent or 919 points on Monday, even as benchmark Sensex dropped 839 points to 38,628.

    There are expectations that some banks may adopt an aggressive bad loan recognition policy. This may keep provisions elevated and hurt earnings in FY21.

    All the components in the index settled in the red with City Union Bank falling the most, down 10.24 per cent. It was followed by Federal Bank (down 8.52 per cent), RBL Bank (down 6.93 per cent) and State Bank of India (down 5.65 per cent).

    Earlier, the Reserve Bank of India (RBI) had announced a three-month moratorium beginning from March 1 to support India Inc and individuals tide over the financial stress due to disruptions in normal business activities, this was later extended by further three months.

    “There are fears that there may be a bigger hit on banks balance sheets or books after the moratorium is lifted. However, lower cost of funds and better treasury yields may support the numbers. We need to look at December quarter earnings for a true picture of the banking sector,” said Abhimanyu Sofat, Head of Research, IIFL Securities.

    Jefferies said Q2-Q3FY21 may show higher slippages, as banks downgrade a small portion of loans (0.1-0.3 per cent), which had been deferred from being downgraded, on account of the moratorium. However, banks (especially private ones) are likely to upfront provisioning in FY21-Q1FY22.

    Majority of banking counters have underperformed the benchmark Sensex in last two quarters. YES Bank cracked the most at 57 per cent between March 1 and August 28, while DCB Bank, IndusInd Bank, AU Small Finance Bank, Bank of Baroda, City Union Bank, The Federal Bank, ICICI Bank, HDFC Bank and Kotak Mahindra Bank have slipped between 5 per cent and 41 per cent.

    On the other hand, CSB Bank, IDBI Bank, Bank of Maharashtra, The Lakshmi Vilas Bank each advanced over 25 per cent.

    Sofat believes the ongoing correction is a buying opportunity in the banking space. "A lot of pain which was there in the system has already been taken care of. Lower credit growth is one of the reasons for the underperformance of banking stocks. We believe banking stocks will consolidate further and will take some time to come back,” he said.

    Emkay Global Financial Services said the moratorium rates have come off in Phase II, while ensuing restructuring may defer or moderate the NPA pain, though high provisioning requirement would still hurt earnings in FY21. It further said the recent capital raise by banks would further improve their shock absorption capacity and it could come handy when growth revives in FY22 as risk-aversion recedes. The brokerage is cautiously optimistic on the sector.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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