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The RBI Governor D. Subbarao’s tough talk that there is only limited room for further rate cut weakened the banking stocks on Tuesday. In fact, the banking stocks’ index remained underperforming benchmark indices, the Sensex and the Nifty, despite a rate cut by the RBI in the past two monetary policies.
While Sensex has fallen by 4.91 per cent since January 29, the BSE Bankex plunged 10.10 per cent.
‘Limited headroom’
Marketmen say banking index was one of the major outperformers in 2012 probably expecting much steep rate cuts.
After a 25 bps cut in repo rate in January, the central bank on Tuesday cut key interest rate by 25 basis points (bps) in its mid-quarter policy review with a caution that growth and inflation concerns have left limited headroom for further monetary easing.
“Banking stocks have been under pressure due to weakness in the economy which is leading to slowing credit growth and rising bad performing corporate loans. Also, RBI cautioned that it might not continue the rate-cut momentum,” said Dinesh Shukla, Senior analyst, Sharekhan.
On the bourses, SBI declined by 2.03 per cent to close at Rs 2,202.95, while PNB was down by 3.12 per cent at Rs 770 and Bank of Baroda was down 2.36 per cent at Rs 701.55. ICICI Bank, country’s largest private lender, fell by 1.92 per cent, while HDFC Bank fell by 1.89 per cent. Since January 29, SBI, ICICI Bank, HDFC Bank and BoB fell by 10.30 per cent, 14 per cent, 3.23 per cent and 17.18 per cent respectively.
“Despite the repo cut, there is no comfort for banks to reduce rates as the cost of funds is still running high. Further, banks are likely to post higher non-performing and restructured assets for Q4 this fiscal,” said Shukla.
According to another analyst with a domestic brokerage, banks may reduce rates only in the first quarter of 2013-14 fiscal. “Till then, banks will continue to perform in this range as there is no trigger for banks amid political and economic weakness.”
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