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Bank stocks fell across the board a day before RBI's annual monetary policy review, on fears of a 50 basis point interest rate hike by the apex bank.
BSE's 14-stock Bankex shed 2.08 per cent or 272.49 points to close the day at 12,804.48. NSE's 12-stock Bank Nifty lost 2.09 per cent over its previous close to end the day at 11,243.8, down 239.95 points. All constituents on the indices closed in the red.
A Morgan Stanley sector update on banking downgraded the industry from ‘inline' (in line with expectations) to ‘cautious'. There is agreement on the bourses that inflation has now gone out of hand.
Pressure on net interest margins and rising risk-to-asset quality are the most important concerns regarding banks, said analysts. “Increasing deposit rates in the last few months are eroding net interest margins,” said an analyst with an Indian NBFC.
“After core banking solutions' implementation, all banks are migrating to a system-driven identification of NPA following a government diktat,” said an analyst with a multinational brokerage. “And since management information systems in PSU banks is not robust, marginal cases that would otherwise not become NPAs are also being counted in.”
The situation would improve only if the NPA cycle reverses and asset quality improves. With too many concerns, in the near-term stocks that were trading at a premium over the mean valuation would correct, said analysts.
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