The stocks of IndusInd Bank
and RBL Bank
have nearly halved in a month and shed 65 — 75 per cent in a year, as worries over asset quality and loan growth dented investor sentiment. At the current levels, the RBL Bank
stock trades near its all-time low, while IndusInd Bank
is at a nearly six-year low.
This despite IndusInd Bank’s management clarifying a week ago that the bank is well-capitalised. RBL Bank
issued another media statement on Tuesday stating that its financial position remains strong, though it did see a 3 per cent reduction in deposits last week.
What’s also ailing these stocks and also the banking sector at large is the dwindling investor confidence created by the YES Bank
turmoil. “Foreign investors have turned cautious on banking stocks sooner than expected,” says the research head at a top brokerage, though Siddharth Purohit of SMC Capital feels that IndusInd Bank
and RBL Bank are examples of extreme risk aversion.
That said, it doesn’t take away the fact that he remains cautious on the two stocks, thanks to the prolonged economic slowdown, worsened by the COVID-19 pandemic.
For analysts, more than the growth slowdown, the composition of their loan book is a cause of concern. Nearly 40 per cent of IndusInd Bank’s loan book -- 24 per cent vehicle loans, 10 per cent microfinance (MFI) loans, and the remaining comprising loans to commercial real estate projects and non-banking financial companies
(NBFC) – has been under stress for a while. “How much of these loans can remain standard in the context of the economic slowdown is tough to guess and an increase in credit costs is a likely scenario,” says a banking analyst from a domestic research firm.
RBL Bank’s exposure may be equally susceptible to asset quality shocks. Nearly 37 per cent of its book is characterised by unsecured loans —credit cards and small business loans — while 14.2 per cent is MFI loans. Not just that, in the December quarter (Q3), it indicated 2.14 per cent of its loan book was stressed (up from 1.6 per cent in Q2) which could lead to elevated slippages (loans turning bad).
“With the operating environment only getting tougher and reluctance among investors for banking stocks, risk aversion in the RBL and IndusInd Bank stocks seem justified,” says a research analyst at a foreign brokerage. March quarter results, due about in a month, will hold the key if the two stocks have to cut their losses.