The Hindu Business Line : Bank stocks riding on hopes of corporate credit offtake

BANKING sector stocks have once again caught the fancy of the investors with stock prices of most banks rising over the last few days on the back of corporate credit offtake expectations in the coming fiscal.

The interest in the banking sector stocks is also seen from the rise in BSE's Bankex Index that has gained over 10 per cent in the last one week, the highest gain seen in any index during this period.

Among the stocks that are actively being bought by investors include SBI, PNB, Bank of India, Oriental Bank of Commerce. In today's trading, the stock of SBI gained 2 per cent to Rs 617.90 on the BSE. Bank of India closed at Rs 61.95, up 5.18 per cent, PNB closed at Rs 333.50, down 0.40 per cent. There is buying in smaller banks such as Andhra Bank, Syndicate Bank and Vijaya Bank too.

According to analysts, banking stocks, particularly the state-run banks, have traditionally been perceived as high-risk ones. These stocks are now shedding this age-old image as many of the concerns on asset quality and vulnerability to interest rates of these institutions are being addressed.

"Rise of interest rates in the short term has been ruled out given the surplus liquidity in the system. And even if it were to happen, it has been proved that banks' profitability does not hinge on treasury gains alone as was earlier perceived,'' said Mr Chirag Shah, Analyst, SSKI Securities.

Analysts said banking stocks are undervalued and are poised for a rise. "The share prices can be twice the `adjusted book value', whereas they are at 1.0-1.5 times currently,'' said an analyst at a brokerage firm. The `adjusted book value' is calculated by removing the amount of the bad loans from the stated book value.

An important structural change in the banking sector has been the changeover to the more stringent norm for NPA recognition in banks.

According to Mr Punit Srivastava, Analyst, Enam Securities, "The change to the 90-day norm should not have any major impact on banks' balance sheets since most of them have been providing for the same since the last one year.''

Another factor for the rise in the bank stocks is the strong economic growth expected to result in demand for bank funds.

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