D-Street Buzz: Banking stocks plunge; shares of RBL Bank, IndusInd Bank, ICICI Bank crack up to 15%

Most Bank stocks suffered strong losses in intraday trade on BSE on April 3 after global brokerage Moody's Investors Service changed the outlook for the banking system to negative from stable, underscoring the negative impact due to disruptions caused by the outbreak of COVID-19.

As per a report by CNBC-TV18, Moody's expects a deterioration in banks' asset quality due to disruption in economic activity from the coronavirus outbreak.

Stating that asset quality will deteriorate, Moody's said a sharp decline in economic activity and a rise in unemployment will lead to a deterioration of household and corporate finances, which in turn will result in increases in delinquencies.

around 14:40 hours IST, Nifty Bank index was down over 5 percent, with shares of RBL Bank, ICICI Bank, IndusInd Bank, Axis Bank and Bandhan Bank among top losers, falling between 7-15 percent.

Mihir Vora - Chief Investment Officer - Max Life Insurance said in an interview with CNBC-TV18 that because of the prolonged lockdown there are fears that the retail and SME loan might start turning a bit sour so the concerns that there may be a rise in NPAs are keeping the financial stocks under pressure.

Many brokerages have highlighted that the lockdown of the domestic and global economies due to the COVID-19 threat will have a meaningful impact on banks’ loan-book growth.

"We have factored a lockdown of 30-45 days in our revised estimates and cut individual banks’ loan growth in FY21 by 3-5 percent and taken deterioration in asset quality. Our earnings revisions are down between 10 percent and 35 percent," said brokerage firm Phillip Capital.

The uncertain outlook and the country-wide lockdown has made banks vulnerable to a new leg of asset-quality crisis, with the most uncertain part being the lockdown period and the time that the economy would take to return to normalcy.

"We believe the impact on asset quality would be the least for HDFC Bank, Kotak Mahindra Bank, and DCB Bank, but it would be relatively high for IndusInd Bank," Phillip Capital said.

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