Shares of most banks (specifically public sector banks) have witnessed a fall in the last few days due to concern over their exposure to the Adani Group.

While the probability of Adani Group default remains considerably low, Anand Dama, Senior Research Analyst, Emkay Global Financial Services said banks are witnessing strong earnings momentum on the back of better growth and margins.

Receding provisioning coupled with the strong capital buffer, provide additional comfort, he said.

Thus, the recent drop in some fundamentally-strong bank-stocks provides a good re-entry point, he added.

The BSE Bankex has lost 1,959 points or four per cent to 47,173 on Wednesday against 49,132 on January 2.

Sharp drop in NPAs

Despite stress-flow from the restructured pool, banks continued to report net negative-slippages due to better recovery and upgrades.

This, along with accelerated write-offs given the higher provision coverage ratio and healthy credit growth, led to sharp drop in Gross NPA ratio of 59 bps to 2.3 per cent for private sector banks and of 53 bps to 5.2 per cent to public sector banks.

The latest bounce-rate trends do not show any visible build-up of stress, though banks need to be vigilant in the unsecured and BB/SBL segments, given rising interest rates, he added.

The RBI recently raised repo rate by 25 bps, while there is still risk of a further rate hike, albeit feeble, amid elevated inflationary readings.

“We believe the rising rates will have some tempering effect on credit growth, particularly in retail segments including mortgages and vehicles, he added.

Banks have largely consumed internal liquidity and may have to now push for deposit growth, mainly in view of the advance-tax outflows and credit growth.

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