The Hindu Business Line : Bank stocks slump

Mumbai, Feb. 21 Banks stocks came under heavy pressure on the bourses on Thursday following the announcement of reduction in lending rates by several banks lead by State Bank of India.

Though the reduction in lending rates may be good for the banks in the long run as it would help credit growth, in the short term it could affect their earnings, said a stock trader.

BSE’s banking index, Bankex, fell 1.23 per cent, one of the two indices that ended in red on Thursday. The other index was that of BSE’s Capital Goods index.

Even a 14.44 per cent rise in the stock of Centurion Bank of Punjab on the back of unconfirmed news reports of a possible merger of the bank with HDFC bank, failed to save the day for the banking index.

The news was denied by both the banks.

“The announcement of the cut in the prime lending rates by some banks led to selling in bank stocks during the later part of the day,” said Mr Jignesh Desai, Head of Institutional Sales, SBICAP Securities.

Making the cut

Government-owned banks such as State Bank of India, Union Bank of India, Bank of India and Canara Bank are among those who decided to cut their prime lending rates on Wednesday, making bank funds cheaper.

SBI, the country’s largest bank, had cut its prime lending rate by 0.25 per cent, Union Bank cut its benchmark prime lending rate (BPLR) by 0.50 per cent, Canara Bank cut its BPLR by 0.25 per cent and Bank of India cut its prime lending rate by 0.50 per cent.

While the analysts are of the view that a cut in prime lending rates might be seen as positive for the banking sector as a whole as this cut signals that overall rates might soften, for the short term this has weakened sentiments for banking stocks as this might affect the earnings of the banks.

Weakened sentiments

SBI fell by 1.19 per cent, Union Bank dipped 4.58 per cent, Canara Bank reported a fall of 4.41 per cent and Bank of India was down by 1.41 per cent.

Other banks which fell substantially include Bank of Baroda, which fell by 5.19 per cent, and Punjab National Bank, which was down by 5.09 per cent.

“The dip in stock prices is an immediate reaction of the banking stocks, especially the public sector banks, to a cut in the prime lending rates by many banks,” said Mr Mangesh Kulkarni, banking analyst, Almondz Global Securities Ltd.

“The market seems to have taken the news negatively, but it seems as only a short term reaction because in the long term, this is positive for the banking industry as a whole,” he added.

As many as 14 out of 18 stocks in the BSE-Bankex index declined on Thursday, while only four advanced.

Analysts bullish

Although the banking stocks are witnessing pressure on the Dalal street owing to a cut in lending rates, analysts continue to remain bullish on them for the long term as these rate cuts to them almost seem as a precursor, further softening the interest rates as a whole.

More Stories on : Banking | Stocks | Interest Rates | State Bank of India

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page