Bank stocks zip ahead on credit surge, rate hike

BSE Bankex on Wednesday gained 3.32 per cent to end the day at a 9-month high of 2,868 points, up 92.03 points from its previous close.

Bank stocks are on a roll following the record growth in credit offtake and a rise in lending rates. The BSE Bankex on Wednesday gained 3.32 per cent to end the day at a nine-month high of 2,868 points, up 92.03 points from the previous close.

The rally is broadbased across public and private banks with 33 of 38 bank stocks rising on Wednesday. State Bank of India (SBI) led from the front, surging 3.9 per cent to gain Rs 18 and closed at Rs 488. It has gained over Rs 40 since it announced its second quarter results on September 30.

The smartest gainer among bank stocks was Federal Bank, which gained 8.25 per cent to close at Rs 327.95. Among public banks, Bank of India gained 7.38 per cent to close at Rs 60.35, Bank of Baroda rose 7.46 per cent to Rs 169.3, Union Bank of India jumped 6.18 per cent to Rs 78.4.

The Bankex has gained close to 17 per cent over the last four months to close at a nine-month high on Wednesday. In June, bank scrips had hit their 52-week lows on fears of rising interest rates and dwindling treasury profits.

Interest rates rose by as much as 150 basis points from the start of this fiscal which dealt a severe knock to banks on their investment portfolios.

"It is time to look beyond interest rates and treasury operations. The recent quarterly results have shown that the core banking business of most banks is strong. Banks have all displayed strong operating results. There is strength in their core earnings potential," said Sejal Doshi, research analyst, Angel Broking Ltd.

Bank credit is expected to grow 18-20 per cent for this fiscal with corporates lining up massive investment plans. This will fuel banks' borrowing and lending business.

Among private bank stocks, ICICI Bank zoomed 3.6 per cent on Wednesday to Rs 308 and HDFC Bank advanced nearly 2 per cent to Rs 428. Other public bank stocks such as Andhra Bank, Canara Bank, Indian Overseas Bank, Punjab National Bank gained 3-4 per cent each.

Another immediate upshot for the sector is the increase in lending rates which has already taken place and the impending hike in deposit rates.

The delay in raising deposit rates, that is, the cost of funds, commensurate to the rise in lending rates gives banks' a short-lived opportunity for higher margins, said an analyst with a foreign brokerage.