Financial stocks crack; Nifty Bank tanks 4%; Axis Bank, SBI slide up to 5%

That apart, NBFC stocks such as Bajaj Financial Holding, Bajaj Finserv, M&M Finance, Choldamandalam Investment and Finance Company, and Bajaj Finance tumbled up to 5 per cent

Financial counters, including heavyweights like HDFC Bank and HDFC, came under selling pressure on Tuesday. Nifty Bank index skid 4 per cent to hit an intra-day low of 21,222.45 in afternoon deals, and was among the top drags on the National Stock Exchange (NSE). Besides, Nifty PSU Bank and Nifty Private Bank indices, too, declined 4 per cent each.

At 1:17 pm, the Nifty Bank index was trading near's day low at 3.9 per cent as against 233 points, or 2 per cent, decline in the benchmark Nifty50 index. Nifty PSU Bank and Private Bank indices were down 3.8 per cent and 4.06 per cent, respectively.

Individually, HDFC Bank extended its decline into second day, down 2.3 per cent to Rs 1,055, on the NSE on reports that the bank has initiated probe into alleged improper lending practices in its vehicle financing arm involving the auto lead head Ashok Khanna. Khanna, an 18-year veteran at the bank, retired on March 31, 2020.

“We’d like to state that the executive concerned who was on an extension of service retired on 31 March in the normal course of his employment. The bank has a well established process of investigating every complaint that it receives and takes actions as appropriate. In the said instance as well, the bank has followed the due process. We’d like to take the opportunity to reiterate that the bank has upheld the highest standards of governance and propriety at all times," said an HDFC spokesperson. READ MORE

HDFC Bank's parent company, HDFC, too slipped 3.4 per cent to Rs 1,782.05 apiece on the NSE. 

Among other counters, RBL Bank, Axis Bank, IndusInd Bank, Bank of Baroda, Bandhan Bank, State Bank of India, and IDFC First Bank slipped between 4 and 8 per cent on the NSE amid profit booking. So far in the financial year, Nifty Bank index has surged 15 per cent till Monday, but has underperformed the benchmark Nifty50 index, which has rallied 26 per cent during the period, ACE Equity data shows.

That apart, NBFC stocks such as Bajaj Financial Holding, Bajaj Finserv, M&M Finance, Choldamandalam Investment and Finance Company, Shriram Transport Finance, and Bajaj Finance tumbled up to 8 per cent.

Global ratings agency Fitch said on Monday that recovery of non-banking financial institutions (NBFIs) in near-term is not probable as the sector continues to wrestle with the fallout from the Covid-19 pandemic.

"We believe the significant economic disruption and prevailing uncertainty caused by the pandemic will impede a return to a more normal operating environment for NBFIs, with consequences for new loan disbursements, asset quality and provisioning, sector profitability, and funding conditions," Fitch said in a statement.

An investor poll at the annual Fitch on India event, held in early July 2020, revealed that more than 75 per cent participants believed Indian NBFIs would take more than one year to show a convincing recovery in light of the effects of the pandemic.

Besides, another report by global brokerage CLSA, said that the Covid-19 pandemic has made fresh recapitilsation drive by the government inevitable for the already distressed financial sector. 

Banking sector is set to report its June quarter earnings, with HDFC Bank set to report the numbers on Saturday, July 18. Analysts believe that the moratorrium levels will decide the asset quality of banks, while loan disbursements are likely to be muted.

"Asset outcomes are clearly perceived internally by banks to be rather uncertain, and the consensus smart move is raising large sums of money today, even at admittedly off-peak multiples... In addition to asset quality uncertainties faced by all lenders, some non-bank lenders have had to contend with a crisis of confidence from liquidity providers. As bond markets dried up for all but the crème de la crème, investors became concerned with availability of incremental funding from banks to tide over asset repayment moratoriums and in some cases even viability of existing bank lines," said analysts at Edelweiss Securities in an earnings preview note.

Those at Emkay Global, meanwhile, say that the recent up-move in banking stocks could be partly attributed to positive newsflow around lower moratorium/collection rates as unlocking has begun. "However, we believe that it is too early to read in to these trends and the real picture on the asset-quality front will emerge once the moratorium is lifted," they noted in a report dated July 12.