Covid-19 impact: Rising asset quality fears keep investors away from banks

Banking stocks have lagged the market in the rebound off coronavirus lows, hit on March 23, 2020

With the Covid-19 situation intensifying in the country and higher chances of the lockdown getting extended, albeit with some additional relief, the Street continues to shy away from banking stocks on concerns that these events will lead to higher bad loans.

A recent report by BoFA Global Research highlights that banks are now on the verge of a new (and unique) non-performing asset or NPA (bad loan) cycle panning across corporate and retail segments lasting through at least FY21-22, which would drive the sector’s return on equity closer to cyclical lows.

In fact, Sunil Jain, head of research at Nirmal