China move gives Indian lenders with NPA worries a lift

ET Intelligence Group: Bank shares were in the limelight on Wednesday as hopes of better prospects for the local steel industry , following China's move to trim steel capacity , bolstered sentiment. Banks' exposure to iron and steel industry is 4.7% of their loan book.

Strong third quarter results from IndusInd Bank also aided the 2.3% run-up in the Bank Nifty index on Wednesday.

Money managers said the result of the private bank is comforting given that the sector had been beaten down recently on fears that demonetisation of higher denomination notes will hurt earnings.

“IndusInd Bank delivered stellar numbers. Overall, the NPA pressure is subsiding which should be seen as a factor for re-rating of the sector,“ said Deven Choksey, MD, KR Choksey Securities.

The Bank Nifty posted its big gestsingle day gain since No vemberon Wednesday.IndusInd Bank led gains on the index. The stock jumped 6.4% to Rs 1,235, its biggest one-day gain in over three years after it posted a 29% rise in net profit from a year ago to Rs 750.6 crore.

Fund managers said China's steel capacity curtailment is more of a sentiment booster but will not have a material impact on the banks.

“I don't think China's curtailment of steel capacity will help the metals sector materially . But coking coal prices have corrected which is giving hope of better margin to steel industry going in the forthcoming quarters,“ said Gopal Agrawal, CIO, Mirae Asset Management.

Agrawal said this will translate to improvement in credit cost for banks as well which have exposure to metal companies. RBI data show banks had exposure of Rs 3,090 crore to iron and steel sector as of November 25, up 4.1% from a year ago.

"The (December) quarter may not reflect the true picture of NPAs because of RBI's extension for recognition of NPAs,“ said Dhiraj Sachdev, senior fund manager at HSBC Global Asset Management.