Nifty PSU Bank declines 2% amid Vodafone Idea's AGR concerns

Analysts link the index's decline to a major drop in Vi's stock price after the SC rejected telecom companies' plea to re-evaluate AGRs, while also affirming the govt's existing AGR demands.

Nifty PSU Bank slips: The Nifty PSU Bank index, which monitors the performance of public sector banks, fell by as much as 1.80 per cent, hitting an intraday low of 6,556.25 on Thursday, September 19, 2024.

Analysts link the index's decline to a major drop in Vodafone Idea's stock price after the Supreme Court rejected telecom companies' plea to re-evaluate adjusted gross revenues (AGR), while also affirming the government's existing AGR demands.

Among individual stocks, with the exception of Indian Bank, which saw a 0.4 per cent increase, all other constituents in the index were in the red. Among other stocks, Bank of India and SBI (both fell 1.09 per cent each), Canara Bank (down 2.58 per cent), Bank of Baroda ( down 2.90 per cent), PNB (down 2.89 per cent), Bank of Maharashtra (down 2.81 per cent), Union Bank of India (down 3 per cent), Central Bank of India (down 4.88 per cent), UCO Bank (down 3.35 per cent), Indian Overseas Bank (down 2.95 per cent), and Punjab & Sind Bank (down 4.22 per cent).

 

Vodafone Idea currently faces outstanding AGR dues worth Rs 70,300 crore, with a substantial portion of this debt owed to public sector banks, analysts pointed out.

Deepak Jasani, head of retail research at HDFC Securities, said that the decline in the Nifty PSU Bank index is tied to the Supreme Court's decision regarding AGR and the substantial debt burden faced by Vodafone Idea, particularly its greater exposure to public banks. This situation may pose risks to the asset quality of those banks moving forward. 

According to a Business Standard report, Vodafone Idea's debt from banks and financial institutions reduced to Rs 4,650 crore in Q1F25 from Rs 9,200 crore a year ago. But the company has to pay Rs 12,000 crore to the government between October 2025 and March 2026, followed by Rs 43,000 crore annually from FY27 to FY31. READ MORE

On Thursday, the Supreme Court rejected telecom companies' plea on re-computation of adjusted gross revenues (AGR). The Supreme Court also rejected curative petitions from Vodafone Idea and Bharti Airtel that sought a limited reconsideration of its 2019 ruling, which mandated the inclusion of non-core revenues in AGR calculations. The petitions argued that the Department of Telecommunications (DoT) had erred in calculating AGR dues, resulting in unjust penalties.

Both companies contended that AGR should only encompass core telecom revenues, while the DoT maintained that it should include all revenue streams, including non-telecom services.

Weak deposits

Fundamentally, Narendra Solanki, head of fundamental research at Anand Rathi Shares and Stock Brokers, stated that public sector units (PSUs) are experiencing profit booking as many stocks have outpaced their fundamental valuations.

For PSU banks, the performance has been hindered by lower deposit growth compared to credit growth, raising concerns about potential compression of net interest margins (NIMs) in the future.

Bucking the trend

On the flipside, Nifty Private Bank was buzzing in trade, following the Federal Reserve’s decision to slash interest rates by 50 basis points (bps). The index rallied as much as 1.16 per cent to hit a fresh record high of 26,810.75 levels.

"With the US Federal Reserve (US Fed) cutting interest rate by 50 bps, it is plausible that the RBI may consider a rate cut to maintain competitive interest rate differentials and support domestic growth, especially given the recent moderation in inflationary pressures. Banking stocks could see a positive momentum as a lower interest rate regime would potentially enhance credit growth and further improve asset quality," said Rajkumar Singhal, chief executive officer, Quest Investment Advisors.