Asset quality worries roil PSB shares

Analysts believe impression that worst was over for the bank post December quarter results failed to hold true

Shares of state-owned banks plummeted on Monday, led by Bank of Baroda (BoB), on asset quality concerns. Investors dumped the shares on worries that the worst in terms of asset quality deterioration might not be over, after some public sector banks (PSBs) made accelerated provisioning for slippage in this financial year.

BoB shares fell the most in nine months at 8.2 per cent. Union Bank of India's fell nearly six per cent. State Bank of India (SBI), Canara Bank and Dena Bank shares fell around four per cent.

 

Investor worry got triggered after BoB chief executive P S Jayakumar said on Friday that the bank could show an additional Rs 5,000 crore in bad assets this financial year.  After its December 2015 quarter results, BoB had stated the bad loan problem had peaked. The impression, then, that this was not so after all had led to Monday's fall, say analysts.

G Chokkalingam, founder, Equinomics Research and Advisory, said: “Contrary to the impression (post December quarter), the March quarter results are shocking. The worries on asset quality and its impact on the performance have put pressure on banking stocks.”

Analysts said the Reserve Bank of India’s (RBI’s) audit of non-performing assets for the March quarter was supposed to put the worst behind in terms of bad loan disclosure. The recent comments by bank officials had quashed those expectations.

“A lot of banks have disappointed in their results. With BoB, there was a lot of expectation that this quarter would be an improvement but it has not happened,” said Siddharth Purohit, banking analyst at Angel Broking.

 

Mounting bad loan pressure is hurting the profitability of PSBs, lagging in performance with their private sector peers. "Overall, the banking industry has been growing but not PSBs,” said Chokkalingam.

Analysts don’t expect a revival in PSB stocks. "The (PSB) sector will have a lot of problems in this year. Revival might not happen until early FY18,” said Purohit. “We shall not advise a ‘buy’ on PSBs until asset quality problems stabilise. For now, we prefer private sector banks.”

Chokalingam suggests going for PSBs that are still growing in these turbulent times. Among the big ones, Punjab National Bank will announce its results on Wednesday and SBI will declare its March quarter numbers on May 27. These will be keenly eyed by the market.