Financials extend fall; Nifty PSU Bank index slips 8% in a week

Shares of financial service providers were trading lower for the fifth straight day on Wednesday. The Nifty Bank, Nifty PSU Bank, and Nifty Financials indices have fallen over 5 per cent, as compared to 2.5 per cent decline in the Nifty 50 index, during the period. In the past week, Nifty PSU Bank index slipped 8 per cent, while Nifty Bank and Nifty Finance indices were down 6.7 per cent and 5 per cent, respectively.

Shares of State Bank of India (SBI), IDFC First Bank, Federal Bank, RBL Bank, Axis Bank, ICICI Bank, Bajaj Finserv, Shriram Transport Finance, Canara Bank of India, Bank of India, and Central Bank of India were down in the range of 3-4 per cent on the NSE.

A week after Finance Minister Nirmala Sitharaman asked banks and non-banking financial companies (NBFCs) to roll out a loan restructuring scheme for companies facing Covid-19-related stress, the Reserve Bank of India (RBI) on Monday announced the financial parameters for the resolution plans under the scheme. CLICK HERE TO READ FULL REPORT

Based on K V Kamath Committee report, the RBI has released final guidelines for One-time restructuring (OTR) of standard corporates (<30 DPD as of Mar 1, 2020) disrupted due to Covid-19 within identified stressed sectors with well-defined financial parameters to avoid rampant restructuring as seen in the past.

Jaikishan Parmar - Sr. Equity Research Analyst, Angel Broking said there are few sectors which were under stress before the pandemic and the outstanding loan book to this sector was Rs 22.20 lakh crore. These sectors' businesses were severely impacted in the Covid-19 pandemic. The brokerage firm believes higher slippages could emerge from this group.

"Key to watch who many companies are able to meet mentions the financial ratio threshold. Another key factor for banks is how much additional provision they have to take," it said.

Analysts at Emkay Global Financial Services believe that the restructuring mechanism may help the stressed borrowers, mainly in Real estate, traders, hotels/restaurants, etc., but resolving stress in lumpy power/infra sector through this mechanism will be challenging without economic revival and sector-specific packages/initiatives by the government. The brokerage firm believes that corporate/non-corporate restructuring (potentially 5-7 per cent of loans at the system level), including moratorium extension, could delay/moderate the NPA pain in the near- medium-term for the banking sector.

Last week, global rating agency Moody’s downgraded the long-term local and foreign currency deposit ratings of four public sector banks — Bank of Baroda, Bank of India, Canara Bank, and Union Bank of India — from “Baa3” to “Ba1”.

Prolonged financial stress among households, weak job creation and a credit crunch among non-banking financial companies will lead to a rise in non-performing loans. This might delay the ongoing clean-up of banks’ balance sheets, Moody’s said.

AXIS BANK 430.10 484.40 -11.2
CHOLAMAN.INV.&FN 218.45 242.70 -10.0
ST BK OF INDIA 196.20 216.25 -9.3
BAJAJ HOLDINGS 2406.45 2651.40 -9.2
POWER FIN.CORPN. 88.05 96.75 -9.0
SHRIRAM TRANS. 637.95 692.40 -7.9
M & M FIN. SERV. 127.80 137.45 -7.0
BAJAJ FINANCE 3415.05 3668.65 -6.9
ICICI BANK 365.80 392.40 -6.8
REC LTD 105.50 112.60 -6.3
BAJAJ FINSERV 6028.35 6365.05 -5.3

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