Bank stocks to remain flat

Bank shares are likely to remain flat next week as investors have covered short positions and will now wait for the fourth quarter earnings.

"Positions have been covered in the last three trading sessions. Lot of leveraged positions have been squared off in the last three days," said Prakash Rajdev, chief dealer at Khandwala Securities.

In the last three days CNX Bankex rose 11.5 per cent against 5.3 per cent rise in the Nifty.

"Nobody now knows how the Sensex is going to behave on a day. So, investors overall, will remain cautious," Rajdev said. Since December, government bond yields have risen 30-40 basis points, leading to worries of depreciation on their investment portfolios.

"Depreciation losses can be booked on short-term papers also," said Ravikanth Bhatt, analyst at IDBI Capital Market.The 10-year 2017 paper has risen 33 bps, while the 5-year has risen 46 bps since December.For example, Punjab National Bank and State Bank of India are some banks which are likely to book some mark-to-market losses because of the rise in yields.

Also, banks have hiked deposit rates more than lending rates, due to which the net interest margins will be under pressure, analysts said.

Moreover, in the last one month, banks have been aggressively mopping up certificate of deposits at sharply higher rates.Three-month CDs touched a high of 12 per cent Wednesday, as banks struggled to get deposits to meet their annual targets."Some banks like ICICI have seen a fall in their retail lending, which may result in lower growth in earnings," said Bhatt.ICICI Bank said its retail loan growth in the last quarter has fallen to 20 per cent from 40 per cent. The country's second largest bank's retail portfolio consists of more than 50 per cent of its total portfolio.