Banking Sectors Down - An Overview

Posted by Deepak

March 31, 2009

The markets had fallen sharply lower in trade yesterday, breaking a five-session rally. Banking stocks were under tremendous pressure and were among the worst it in trade yesterday.

Most Banks had touched their 52 week lows in the first week of March 2009 and since then these stocks rallied by an average of 20-30% led by Global banks stating their profitability taking the bankex up by 22%. However yesterday, the bankex fell by 8.5% as a against a Sensex fall of 4.78%.

Global banker statement that March was tougher than January or February lead further banks to correct.

Bank stocks that fell:

- ICICI Bank was one of the biggest losers yesterday and was down 12% and analyst fear the banks loan losses in foreign subsidiaries will take its valuations down by 30%.

- HDFC Bank too took a bad beating and slipped 9%; this stock was trading at expensive valuations of 18 times its FY10 earnings.

- Axis Bank down 8% yesterday and the stock is trading at nine times its FY10E earnings

- Punjab National Bank fell 10% yesterday. The bank is now adopting a more cautious approach in loan and it expects a credit growth of 20% in the next fiscal.

- SBI lost 9% in yesterday and the bank hinted at further rate cuts.

- Yes bank was down 10% on concerns of low CASA (Current Account and Savings Account) and Dependence on wholesale borrowings.

More pain likely:

Analysts fear an increase in illiquid parts of banks’ balance sheets and the banks’ liquidity ratio analysis shows some concerns. Further, experts fear a greater reliance by banks on volatile liabilities for asset growth.

The upside:

On a positive note however, Banks and Non-banking finance companies (NBFC) are financially healthy. Net non-performing assets (NPA) have fallen to 1.1% from 7% in 2000 and the cost to income ratio too has declined to 48% from 62% in 2000. It is believed that the corporate bond market development would ease funding constraints. Also, better management of interest rate risk by commercial banks is seen going ahead.source:moneycontrol.com