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Banking stocks buckle under contagion fears; SBI Slips 6.5%

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MUMBAI: Banking shares were among the top losers in the sell-off on Friday as the crisis at Yes Bank raised worries about a knock-on effect on the financial system. Yes Bank’s stock slumped 57% to close at ₹16.6.

Major banks, like Kotak Mahindra Bank, HDFC Bank, Bank of Baroda, Axis Bank, ICICI Bank and IndusInd Bank between 1% and 6%.

SBI, which is buying 49% stake in Yes Bank, slumped over 6%.

"There was a knee jerk reaction as the market fell and there was a fear of contagion risk," said Piyush Garg, chief investment officer at ICICI Securities. Garg said investors should stick to buying quality large-cap banks than putting money in tier-II banks.

The banking sector has been reeling under the after effects of the IL-FS default, NBFC crisis and the credit crunch in recent years.

Analysts said the moratorium imposed on Yes Bank could impact shares of smaller banks especially those with weaker asset quality. “As the delay in bailout creates an unnerving precedent and uncertainty for deposit holders and debt providers, it is likely to impact deposit/liquidity flows to other small- /mid-sized private sector banks," said Credit Suisse.

“This would also likely further aggravate the credit crunch in the economy as private banks have been the primary loan growth driver (around 60% of incremental loans in the past 12 months) and could accelerate a second wave of stress for the system,” said Credit Suisse.

Kotak Institutional Equities said there are likely to be disruptions in the financial market till the issues settles down over the next few weeks.

The moratorium will ensure Yes Bank does not default on bonds/deposit payments for the next 30 days. “The negative experience through IL-FS, PMC Bank (less impactful) and now with Yes Bank would make it lot more challenging for players to raise liabilities while we expect significant improvement in competitive positioning for the frontline private banks (HDFC Bank, ICICI Bank and Axis Bank) and select public banks like SBI,” said Kotak Institutional Equities.




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