Banking stocks zoom, then fall as traders book profit

The optimism in the banking sector after the Reserve Bank of India announced a 75-basis point rate cut and a host of measures to fight the economic damage from coronavirus outbreak was rather short-lived.

Traders booked profits in banking stocks on Friday after the announcement of a series of measures, which also included a cut in reverse repo rate and a moratorium of three months of equated monthly installments on all outstanding loans.

There was also concerns that these measures may only give a temporary reprieve to banks if businesses remain under pressure even after three months of moratorium, leaving the risk of rise in bad loans high.


“The liquidity infusion is good but the bigger challenge is whether banks will be willing to lend that money because there are so many businesses which have got affected, the risk aversion is still high among banks,” said Suresh Ganapathy, head of financial services research at Macquarie. “The three-month moratorium for payments may not be sufficient so this is a temporary reprieve.”

Ganapthy said the banking sector stocks ended off highs due to profit taking.

Bank Nifty ended up 1.81 per cent at 19,969, off the day's high of 9 per cent gain. Bandhan Bank gained 17 per cent to close at Rs 251.95. Bank Nifty gained 16 per cent in the last three sessions, as the broad market rallied in response to the stimulus package announcements in the US, followed by in India. The index is still down 38 per cent from December’s record high of 32613.1.

Federal Bank, Axis Bank, IDFC First Bank, ICICI Bank, Kotak Mahindra Bank and State Bank of India ended up 1-6 per cent.

IndusInd Bank ended down 5.7 per cent while Bank of Baroda, RBL Bank and HDFC Bank ended down by about 0.1-3.8 per cent.

IIFL said RBI's statement on developmental and regulatory policies is very positive for all lenders, both banks and NBFCs, as it addresses critical problems on liquidity and asset quality.

The liquidity measures are positive for large lenders and mutual funds, but a direct support for NBFCs is needed urgently and is missing, said IIFL.

The asset quality support is timely, but going forward, the RBI will also have to think about providing further forbearances like reducing capital requirements/provision requirements once operating profits contract substantially, said IIFL.