INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Foreign institutional investors’ behaviour on Dalal Street in recent times has had one common denominator – VUCA
And this has been m ore prominent on the PSU bank counter than anywhere else.
VUCA is an acronym for four factors –volatility,
uncertainty, complexity and ambiguity.
A Rs 13,000 crore loan scam in public sector lender Punjab National Bank (PNB) involving diamond
merchant Nirav Modi, and an avalanche of corporate governance issues in several public as well as private sector banks created a bitter
taste for foreign portfolio investors (FPIs), making them to run for cover.
All but one of the 13 PSU banks, which have so far reported
March quarter shareholding details, reported a drop in FII holdings during the March quarter
Out of the 13 PSBs, four saw a drop in FPI holdings by 100-400 basis points
One hundred basis points (bps) equal 1 percentage point.
In Oriental Bank of Commerce (OBC), FII stake fell by 389 bps to 4.38 per cent in
March quarter from 8.27 per cent at the end of December quarter, Capitaline data showed
Following the PNB scam, reports emerged about alleged loan frauds and defaults at both state-run as well as private banks, which dragged
market value of 17 PSU banks by up to 35 per cent this calendar alone.
OBC had in 2017 registered a case against Delhi-based diamond
jewellery exporter Dwarka Das Seth International for an alleged loan fraud to the tune of Rs 389.85 crore
The stock is down 17 per cent year to date.
Bank of India (BoI) saw a 286 basis points drop in FPI holding to 1.17 per cent in Q4 FY18 from
This stock is down 31 per cent this calendar even as the bank said it recovered Rs 7,000-8,000 crore from different NPA accounts.
In three
PSU lenders – Canara Bank, Bank of Baroda (BoB) and Vijaya Bank – FPIs have cut stakes by up to 262 bps
FPIs have also cut exposure to SBI, Corporation Bank, IoB, UCO Bank, United Bank and Central Bank
Analysts largely expect muted numbers from the banking pack for March quarter due to elevated credit costs, weak interest income growth and
lower treasury gains, though the recent RBI directive to amortise mark-to-market bond losses over four quarters is providing them some
cushion.
“Plagued by instances of frauds at banks and intensive data-verification exercise currently under way, we believe credit growth
of most PSU banks (PSBs) would be slowed than the industry growth rate
Volatile bond yield movement would have had impacted treasury income (and other income) for PSBs
Notably, PNB should see large NPA addition during the quarter as a consequence of the recent Rs 12,400 crore fraud,” brokerage Sharekhan
said in a note.
While shareholding data for PNB is yet to be out, data aggregator Prime Database suggests FPIs stake in the fraud-hit lender
to 9.11 per cent at the end of March quarter from 12.56 per cent at the end of December.
Brokerage Edelweiss Securities believes March
quarter earnings would be a washout for the scam-hit bank, as uncertainty lingers on because of the liability pertaining to a slew of
frauds.
“While clarity is still anticipated, we do expect that liability to be borne by PNB
Moreover, given the scam-related fiasco, we expect the bank’s business momentum to see a significant loss of momentum
We expect some run-down on the overall loan book (despite this being a seasonally strong quarter),” the brokerage said in a
note.
Sharekhan, on the other hand, believes relatively better-managed PSBs such as SBI and BoB, too, may see soft credit growth in March
quarter.
“But elevated incremental stress is likely to be hemmed in by seasonally strong recoveries
The RBI directive allowing banks to amortise MTM bond losses over four quarters may provide some much-needed cushion, mainly for PSBs, as
Q3FY2018 numbers has shown large MTM provisions with PSBs,” it noted.
Edelweiss Securities expects BoB’s NIIMs to remain under pressure
on higher interest income reversal in domestic book and pressure in overseas NIM.
Reclassification within the stress pool after the RBI
directive may lead to a rise in headline asset quality numbers, consequent to which credit cost is likely to remain high, it said
SBI and Union Bank are also expected to report incremental stress
Rating Agency Brickwork Ratings recently downgraded six PSU banks, citing weak financial results for Q3FY18, a significant fall in treasury
income, increased provision requirements for large corporate loans, which are under bankruptcy proceedings, and vulnerability to certain
types of operational risks.
