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The Nifty Bank index today fell 2.1% in intraday trade to hit a low of 50,440.6 on the NSE
The Nifty Bank index today fell 2.1% in intraday trade to hit a low of 50,440.6 on the NSE
Bank stocks, especially public sector banks, were in free fall on Friday. The Nifty Bank index today fell 2.1% in intraday trade to hit a low of 50,440.6 level on the NSE (National Stock Exchange).
The index was under pressure from IndusInd Bank, AU Small Finance Bank, Canara Bank, Punjab National Bank and IDFC First Bank. Barring IndusInd Bank’s 20 percent decline, all other stocks declined in the range of 4 percent to 6 percent.
Separately, ICICI Bank, HDFC Bank, Federal Bank, State Bank of India and Bank of Baroda were down as much as 2.6% at 12:30 pm. In comparison, the Nifty Bank index was trading down 1.8% and the Nifty50 was down 1.14%.
The Nifty Private Bank index, on the other hand, was down 1.8% intraday.
IndusInd Bank shares tumble 18%
IndusInd Bank’s Q2 results, according to analysts, were an overall miss as loan growth slowed, net interest income (NII) fell sequentially, defaults jumped and the cost of credit increased. Analysts said that despite accounting for one-off provisions, the private lender’s profit came in below the consensus estimate.
IndusInd Bank’s second quarter results were characterized by higher provisions, lower other income and slower growth in higher yield loans, MOFSL said.
Deposit growth was robust due to term deposits, but NIM contracted sharply amid rising costs and slower growth in higher-yielding assets, MOFSL said.
“IIB had previously guided for loan growth of 18-22% for FY25. However, given the bank’s cautious view on unsecured growth, we estimate credit growth at 13 percent. While the MF and Card business may continue to see some stress in the near term, overall shortfalls are likely to remain under control and help maintain robust asset quality,” MOFSL said, cutting its earnings estimates by 16.7 %/8.7% for FY25/26. He suggested a Buy rating with a target of Rs 1,500.
Key factors to watch going forward will include asset quality improvements, gap control and NIM recovery. The bank’s management will need to outline a clear strategy to address these challenges and drive future performance, analysts said.
Why are bank stocks falling today?
FPI, FII sale
FIIs have dumped Indian stocks worth Rs 98,086 crore so far in October, according to NSDL data. During the same period, domestic institutional investors (DIIs) made net purchases worth Rs 92,932 crore. NSDL data showed that the financial services sector saw the highest FPI outflows between October 1 and 15, totaling up to Rs 23,283 crore.
FPIs had previously bought Rs 27,200 crore worth of Financial Services stocks in September; saw outflows of Rs 12,008 crore in August and Rs 7,648 crore in July.
A jump in bond yields
Also, a surge in US Treasuries, which spilled over into Indian bond yields, also dampened sentiment in the banking pack. A jump in bond yields has a negative impact on banks’ securities portfolios, as it erodes the market value of the bond portfolios held by them.
U.S. Treasury yields hit three-month highs on Wednesday as the bond market analyzed the U.S. Federal Reserve’s next move to cut interest rates amid the U.S. presidential election in November.
The yield on the benchmark 10-year U.S. Treasury note hit its highest level since July 25, reaching 4.26 percent during the day on Wednesday, while the yield on the 2-year Treasury note rose to its highest level since August 19 of 4.07 percent. Higher yields suggest bond markets now expect higher interest rates in the coming years than they did before the Fed cut rates last month.
At home, the 10-year Treasury yield rose 1.7% today, hitting an intraday high of 6.94%. So far in October, bond yields have risen 1.1 percent.
Concern for the growth of the banking sector
Overall, non-food credit growth in the banking sector slowed to 13.6% y-o-y in August 2024 from 13.7% y-o-y in July 2024, led by a slowdown in all key
sectors.
Going forward, analysts at IDBI Capital expect credit growth to slow in the 13-14 percent range, led by a slowdown in unsecured portfolios such as credit cards, personal loans as well as NBFCs, which were impacted by RBI’s increase in risk weights.
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