Policy blues take toll on bank stocks

Bank stocks were sluggish on Monday, on the eve of the Reserve Bank of India's quarterly review of monetary policy.

The BSE Bankex index slipped 0.68 per cent on Monday as Centurion Bank of Punjab slipped 2.43 per cent to Rs 24, Indian Overseas Bank fell 2.28 per cent to Rs 113.45 and ICICI Bank by 1.72 per cent to Rs 569.75.

Canara Bank, however, rose 3.5 per cent to Rs 232, thanks to a 30 per cent growth in its last quarter net profit. Nevertheless, over the past fortnight, the BSE Bankex has lost 3.4 per cent compared with a 1.2 per cent fall in the Sensex.

Analysts highlight that investors have increasingly adopted a wait-and-watch policy, which has resulted in a lack of buying.

Stocks of private sector HDFC Bank dipped almost 5.9 per cent over the past fortnight, while ICICI Bank fell 3.7 per cent.

A clear theme for the banking sector has been credit growth of nearly 30 per cent between April 2005 and Jan 2006 compared with a deposit growth of a mere 17 per cent during the same period.

Already, in response to this situation, several banks have hiked deposit rates by 25-75 basis points, while corporate loans have become dearer by 150-200 basis points.

Analysts point out that given the recent hike in lending rates, there appears to be a broad consensus that the RBI governor is unlikely to hike interest rates tomorrow.

In fact, some industry watchers are expecting a cut in the cash reserve ratio by 25-50 basis points from the current 5 per cent to infuse liquidity into the system.

Any hike in interest rates is unlikely to hit banks' treasury income as most of players have already transferred a substantial portion of their treasury securities to the held-to-maturity category. In a rising rate scenario, banks will benefit as their interest income will go up.