Life Insurance Corporation of India (LIC), which has considerable investments in 23 public sector banks (PSBs), has lost Rs 10,436 crore after the recent rout in markets.
Stock markets have tumbled nearly 10 per cent and touched a fresh 52-week low in 2016. While the Nifty 50 has slipped below the 7,000 mark, for the first time since May 2014, the Nifty PSU Bank Index has slipped 28 per cent in this period.
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LIC’s total investments in PSBs declined by Rs 10,436 crore to Rs 27,778 crore till Thursday, based on shareholding pattern as of December 31. In 14 PSBs, LIC held more than 10 per cent stake each. Total market capitalisation of 23 PSBs eroded by Rs 95,741 crore to Rs 2,55,260 crore so far in 2016.
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Asked to recognise non-performing assets (NPAs) and create adequate provisions to cover them, all PSBs posted a sharp drop in net profit during the October-December quarter.
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Twenty-six PSBs have reported a combined net loss of Rs 10,609 crore in the quarter. These banks had posted net profit of Rs 7,337 crore in the same quarter a year ago. The provisioning and contingencies (excluding tax provisions) more than doubled to Rs 44,305 crore from Rs 21,293 crore.
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Of these 26 banks, 11 posted quarterly losses. Some are — Bank of Baroda, Rs 3,342 crore; IDBI Bank, Rs 2,184 crore; Bank of India, Rs 1,506 crore; UCO Bank, Rs 1,497 crore; and Indian Overseas Bank, Rs 1,425 crore.
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State Bank of India (SBI), in which LIC held 11.5 per cent or 875 million shares, has seen an erosion of nearly Rs 6,000 crore in its market capitalisation in 2016, accounting for over half of the Rs 10,436-crore loss. The stock has slipped 29 per cent from Rs 224 to Rs 159 so far in 2016.
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LIC had bought 20 million shares of Bank of India at Rs 132 each last month. In March 2015, LIC had purchased 20 million shares of the bank at Rs 283.5 through a preferential issue. The stock closed at Rs 86 on the BSE on Thursday, down 25 per cent so far in 2016. Analysts expect more pain for the banking sector.
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“Volatility and news flow on bad loans is likely to intensify over the next two to three quarters, holding back stocks. The new base rate mechanism is also likely to be announced soon and will also have some impact on profitability. We remain constructive on Indian private banks, as we believe they will structurally gain market share from PSBs,” said Anil Agarwal, an analyst tracking the banking sector at Morgan Stanley.
From a bank disclosure perspective, while the January-March quarter should continue to see high NPAs, Adarsh Parasrampuria, an analyst tracking the sector at Nomura, expects banks to keep recognising stressed loans or at least provide for incremental stress into the first half of FY17, and not limit themselves to stress recognition mandated by the central bank. “Investors rightly are more concerned about the timing of these recognitions. With a lot of NPA recognition still to come, our sense was that investors would like to see more recognition and get closer to 15-16 per cent stressed loans at the system level before turning more positive. Among PSBs, high stress, lower profitability, and high dilution create a vicious cycle, except for SBI and Bank of Baroda (buy recommendations). We remain cautious on Punjab National Bank, Bank of India, and Union Bank Of India,” Parasrampuria and Amit Nanavati said in a co-authored report.