Forex Tips - Bank stocks took a battering on Tuesday over concerns of rising sticky loans that could require higher provisioning and shrink capital and earnings.
On Tuesday, shares of India's largest private sector bank in terms of assets, ICICI BankBSE 1.08 %, hit a 20-month low, while stocks of other banks such as State Bank of India, Axis BankBSE 1.16 %, Punjab National Bank were trading close to their one-year lows.
Sentiments were further affected after consumer inflation for November rose to 14-month high as hopes of aggressive rate cuts by the RBI next year began to fade. Analysts advised investors to buy quality banking stocks with a long-term horizon, citing attractive valuations, but asked them to avoid this space in the near term.
"We are bullish on some of the private sector banks, and our top picks are HDFC Bank, SBI, Yes Bank, and Kotak Bank," said Aditya Narain, MD and India strateg ..
Though the pace of stressed asset formation in the banking sector has slowed down, some of the NPAs have been masked by the so-called 5/25 restructuring scheme, said ICRA. The so called 5/25 scheme allows banks to extend long-term loans of 20-25 years, while refinancing them every five or seven years. ICRA has further highlighted that there has been a moderation in the pace of stressed asset formation from around 5.6% in FY15 to 3.3% in the first half of FY16. The rating agency analysed 26 public sector and 15 private sector banks which make up 90% of the credit and deposit portfolio of banks in India.
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