Farm credit diktat mauls bank scrips

Bank stocks received a hammering on Monday following the government's announcement on Friday that it planned to increase banks' disbursal of farm credit by at least 30 per cent.

The Bombay Stock Exchange Bankex was down 1.71 per cent even as the Sensex slipped 0.66 per cent (31.37 points) to 4,738.62. The turnover on the BSE fell to a 11-month low of Rs 1,331 crore yesterday even though the turnover on the National Stock Exchange was at an eight-month low of Rs 3,268 crore.

The government statement led the markets to assess the cost to banks of this aggressive pace of lending, with some sections wondering if the banking system would see a return of the loan-melas of the early 1980s.

The State Bank of India scrip crashed 4.86 per cent to Rs 416.20, the Bank of Baroda scrip was down 5.36 per cent to Rs 154.35, Andhra Bank was down 5.26 per cent to Rs 40.50, Vijaya Bank lost 8.47 per cent to Rs 39.45, and Indian Overseas Bank lost 4.39 per cent to Rs 40.30.

According to analysts, the bank stocks were under sustained selling pressure since early morning after broking firm CLSA downgraded the banking sector.