Banking stocks fell off a cliff on Wednesday after a string of public sector banks reported huge losses on account of rising bad loans in the December quarter.
Punjab National Bank (PNB), which posted an operational loss because provisions for bad loans doubled in Q3, fell nearly 9 per cent to Rs 79.95, extending its 6.5 per cent slide on Tuesday.
Brokerages downgraded PNB shares following its earnings miss on Tuesday. CLSA cut its target price on PNB stock to Rs 90 from Rs 155 earlier while Macquarie has a target of Rs 64. Domestic brokerage Kotak said that the asset quality of India's fourth biggest lender could get worse going forward.
Among other big state-run lenders, Bank of Baroda fell nearly 6 per cent to Rs 116.90 while Bank of India declined 5.6 per cent to 90.40. India's biggest bank by assets SBI, which reports Q3 earnings tomorrow, fell nearly 5 per cent to Rs 159.
The selloff was severe in smaller state-run lenders. Central Bank of India shares slumped 12.3 per cent to 54.20, Dena Bank shares fell 7.4 per cent to Rs 28.95 while Allahabad Bank shares plunged 9.6 per cent to Rs 46.10.
Shares of Indian Overseas Bank, which today reported a loss of Rs 1,425 crore in its third quarter, fell nearly 6.2 per cent to Rs 23.
More than two dozen lenders majority owned by the government dominate India's banking sector with two thirds of the assets. These lenders together also account for close to 90 per cent of the sector's troubled assets of nearly $100 billion.
(Read: $100 Billion Hole Leaves India's Banks Struggling)
The surge in provisions for bad assets comes in the wake of Reserve Bank Governor Raghuram Rajan's call for a clean-up of bank balance sheets by March 2017. Indian banks, burdened by their highest stressed-assets ratio in 13 years, have been asked by the Reserve Bank of India (RBI) to treat some troubled accounts as non-performing even if actual default has yet to happen and make adequate provisions.
Private sector banks also came under selling pressure. ICICI Bank, which also had reported a jump in bad assets in its third quarter, fell 1 per cent to Rs 207.15.
Bank of Maharashtra shares however bucked the trend by ending 8 per cent higher at Rs 31.90, after the lender today reported higher net profit and an improvement in asset quality in the December quarter.
The NSE index for PSU banking index (Nifty PSU Bank) fell 5.4 per cent as compared to 1.1 per cent losses in the broader Nifty.
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