Bank stocks crack; IndusInd, ICICI Bank plunge 11%, Nifty Bank dips over 8%

Banks stocks including that of State Bank of India (SBI), ICICI Bank, IndusInd Bank and HDFC Bank plunged over 11 per cent on the National Stock Exchange (NSE) on Monday as sentiment remained weak across the board post the Reserve Bank of India's (RBI) directive to close Mumbai-based CKP Cooperative Bank.

The Nifty Bank index declined 8.5 per cent on the NSE in the intra-day trade today, and was among the top losers on the exchange. In comparison, the Nifty50 was at 9,269.50 levels, down 590.40 points or 5.99 per cent at 2:50 pm. 

Individually, IndusInd Bank and ICICI Bank slumped 11 per cent each, Bandhan Bank plunged 10 per cent , Federal Bank (10.7 per cent), and HDFC Bank (8.4 per cent). Besides, Axis Bank, Bank of Baroda, Punjab National Bank, and SBI were trading 6.5 to 10 per cent lower on the NSE. 

Nifty Private Bank index, too, declined 9 per cent and Nifty PSB index slipped 6.3 per cent on the NSE.

That apart, stocks of non-bank finance companies (NBFCs), too, were under heavy selling pressure. Cholamandalam Investment and Finance Company, Shriram Transport Finance, Bajaj Finance, Indiabulls Housing Finance, HDFC, and Bajaj Finserv were all down in the range of 5 to 10 per cent.

On Saturday, the RBI cancelled the licence of CKP Co-operative Bank with effect from the close of business on April 30, 2020, citing the bank's weak financial position and said that the bank was not in a position to pay its present and future depositors due to its financial instability.

The RBI, in a statement on Saturday, had said there was no concrete revival plan or proposal for merger with another bank and that credible commitment towards revival from the management was not visible. The bank failed to meet the regulatory requirement of maintaining a minimum capital adequacy ratio of 9 per cent and reserves.

The central bank, however, assured depositors that more than 99 per cent of them will get full payment of the deposits back from the Deposit Insurance and Credit Guarantee Corporation (DICGC). 

“CKP Co-op Bank, Mumbai, has been under the all-inclusive directions of the RBI since 2014. As there was no scope for revival of the bank, its licence has been cancelled. Out of 132,170 depositors of the bank, about 99.2 per cent will get full payment of their deposits from their DICGC,” tweeted Yogesh Dayal, chief general manager of RBI.

Apart from the weak sentiment due to the RBI's directive, selling pressure mounted at the banking counters on fears of rising non-performing assets (NPA) due to the nationwide lockdown that has brought the economic activity to a grinding halt.

According to a Reuters report, the government expects bad debts to double owing to the coronavirus crisis. 

"There is a considered view in the government that bank NPAs could double to 18-20 per cent by the end of the fiscal year, as 20-25 per cent of outstanding loans face a risk of default," a senior government official told the agency.

A fresh surge in bad debt could hit credit growth and delay India's recovery from the coronavirus pandemic. "These are unprecedented times and the way it's going we can expect banks to report double the amount of NPAs from what we've seen in earlier quarters," the finance head of a top public sector bank told Reuters.

The Indian economy came to a halt amid a 40-day nationwide lockdown to rein in the spread of coronavirus cases. The lockdown has now been extended by a further two weeks, but the government has begun to ease some restrictions in districts that are relatively unscathed by the virus.

India has so far recorded over 42,000 cases of the coronavirus.