Bank stks in focus; Nifty Bank adds over 2.5%; IDFC First gains 7%, SBI 2%

Bank stocks such as Federal Bank, State Bank of India, HDFC Bank, and Axis Bank saw sharp upswing in the afternoon session on Monday, rising up to 5 per cent. At 2:41 pm, Nifty Bank and Nifty Private Bank indices were up 2.6 per cent and 2.8 per cent, respectively, and were the top sectoral indices on the National Stock Exchange (NSE). Nifty Public Sector Bank index, meanwhile, was up 0.3 per cent on the NSE. In comparison, the benchmark Nifty50 index was up 0.90 per cent.

Private banks lead

Private banks were leading from the front. IDFC First Bank jumped 6.7 per cent in the intra-day trade to hit a high of Rs 33 on the NSE. The rally came ahead of the AGR hearing in the Supreme Court. That apart, IndusInd Bank gained 4.2 per cent. 

According to estimates by global brokerage Macquarie, IDFC First Bank has an exposure of Rs 2,500 crore towards telecom companies, while IndusInd Bank's exposure stands at Rs 3,995 crore. IDFC First Bank's debt exposure to Vodafone Idea accounts for 11 per cent of its net worth, and 9 per cent of the IndusInd Bank's net worth, the brokerage said in a report in January.

Other stocks such as HDFC Bank advanced 3 per cent, City Union Bank (up 2.3 per cent), ICICI Bank (2 per cent), and Axis Bank (1.3 per cent).

Public banks mixed

State Bank of India (SBI) gained 1.8 per cent on the NSE on report that the bank could be among the five state-owned banks which may sell shares to institutional investors in the second half of this fiscal to shore up their capital base amid the coronavirus pandemic impacting the economy.

Four to five large banks like State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB) and Union Bank of India would look at raising capital towards the end of third quarter or during the fourth quarter of this fiscal, banking sources to news agency PTI. READ MORE

In another development, the government, on Friday, appointed Ashwani Bhatia as the Managing Director of the State Bank of India

Punjab National Bank (PNB), however, slipped 1.1 per cent to Rs 35.2 per share on the NSE after the bank reported a standalone profit of Rs 308.45 crore in the June quarter of FY21, down 69.7 per cent on a yearly basis, from Rs 1,018.63 crore reported in Q1FY20.

The profitability was hit by higher provisions for bad loans, which more-than-doubled to Rs 4,836.40 crore from Rs 2,147.13 crore in a year.

"PNB reported a sharp decline in earnings led by provisions for bad loans, even as operational performance was broadly stable. Low CET-1 remains an issue due to the risk of book-value dilution and imminent rise in credit costs because of high share of moratorium," said analysts at Kotak Institutional Equities. They have 'reduce' rating on the stock with a fair-price of Rs 33.

Bank of Baroda, too, dipped around a per cent to Rs 47.9 per share on the NSE.

Union Bank of India, on the other hand, jumped 5.7 per cent after the bank's June quarter profit rose to Rs 340.95 crore as against Rs 230.12 crore in the corresponding period of last fiscal. State-owned bank's total income stood at Rs 20,487.01 crore during the Q1 of fiscal year 2020-21 as against Rs 10,053.68 crore in the same period a year ago, the bank said in a regulatory filing.

The figures related to June 2019 are of pre-amalgamated period, hence not comparable with post-amalgamation financials for the quarter ended June 2020, Union Bank of India said. Amalgamation of Andhra Bank and Corporation Bank into Union Bank came into effect from April 1, 2020.

"The bank reported PAT of Rs 330 crore in its first quarterly result post amalgamation. NII of amalgamated entity grew 17 per cent YoY while subdued fees (down 35 per cent YoY) and cost growth of 11 per cent YoY, kept core PPoP growth modest at 2 per cent YoY. Net interest margin (NIM) was largely stable at 2.5 per cent. Amalgamation exercise resulted in CET 1 coming off to 8.6 per cent. While Gross non-performing loans (NPL) ratio remained steady, net NPL ratio improved to 5.2 per cent. Management mentioned 28 per cent of bank's term loans were under moratorium (term loan is 55-60 per cent of overall loan book) and its expect 5-6 per cent of book may get restructured. Valuations are cheap and no big negative surprise on merger and reasonable commentary on asset quality prospect may provide near term upside, but structural challenges of low CET1, relatively weak core PPP to average loans of 1.6% and high percentage of loans under moratorium are concerning," said Antique Broking in a report. It has 'Hold' rating on the stock with a target price of Rs 35.

According to a Business Standard report, the Centre will draw the final contours of state-owned banks’ recapitalisation in the second half of the current fiscal year after ascertaining how lifting of the moratorium on loan repayment impacts the balance sheet of lenders. READ HERE

Global agency Moody's pegs the banks' recap needs at Rs 1.9 lakh crore to Rs 2.1 lakh crore ($25 billion-$28 billion) in external capital over the next two years under its base scenario to restore their loss absorbing buffers.

The agency, in a report dated August 21, said that the most likely source of capital to plug the capital shortfalls will be government support, despite the completion of a large recapitalisation by the government several months ago. Of the total amount of required capital, the agency estimated that PSBs will need about Rs 1 lakh crore to build loan-loss provisions to about 70 per cent of NPLs, which will leave them with enough capacity to grow loans 8-10 per cent annually, faster than the 4 per cent in fiscal 2020.