Banking index slips 4% to four month low as NPA fears rise

12 Apr , 2021 By : Kanchan Joshi

MUMBAI: Bank stocks on Monday fell the most amid worries of asset quality amid surge in covid cases. The banking index dropped 4%, hitting a fresh four-month low.

Among banking stocks, RBL Bank fell 10%, Indusind Bank 7%, Bandhan Bank 6.4%, State Bank of India 6%, Federal Bank 5.8%, Axis Bank 4%, ICICI Bank 3.24%, Kotak Mahindra Bank 2.7%, HDFC Bank 2.2%.

"The continued weakness in banking stocks, due to increased fear of a spike in NPAs (non-performing assets), is limiting upside despite the strong performance from the other sectoral pack so the alignment between the benchmark and banking index is critical else the consolidation will continue. Amid all, we reiterate our cautious view and suggest traders preferring hedged bets" said Ajit Mishra, VP Research, Religare Broking.

India reported a record 168,912 new covid-19 cases, data from the Union health ministry showed. With this, India has overtaken Brazil to become the second-most affected country globally by covid-19.

India's overall tally reached 1.35 crore on Monday, surpassing Brazil's 1.34 core cases, according to data compiled by Reuters. The US leads the global tally with 3.12 crore cases. The resurgence of the virus led to 904 new deaths, taking the total death count to 1,70,179. There are 12,01,009 active cases in India.

Also, with honourable Supreme Court lifting its direction on NPA recognition, analysts expect to see a realistic asset quality impact this quarter.

"Post SC lifting NPA recognition we will witness actual stress levels. Although we are estimating slightly higher than trend slippages before it starts normalizing from Q1FY22. We do not expect very high incremental restructuring and see higher implementation of existing pipeline. With 35-130 bps provision buffer and 70% PCR (provisioning coverage ratio) on pro-forma basis for most large banks, we expect lower provisions while higher provision build-up in banks with lower than 70% PCR," said research-based financial services firm Prabhudas Lilladher in a note to its investors.

"As SC lifted the interim order on recognition in Mar’21, we expect recoveries to be slightly slower and pick up from Q1FY22 onwards," according to the note.