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Bank stocks are likely to see a mixed trend with lack of secular direction for scrips in the sector ahead of November derivatives expiry on Thursday. Banking stocks are also likely to take cues from the choppy trend in broader equity markets. However, the general preference for private banks stocks over state-owned lenders will continue as the latter remains plagued by asset quality issues.
We noted that despite functioning in the same economic environment, better risk management practices had helped private banks contain any major
impact on asset quality unlike state-owned peers whose profits had been hit by rising restructuring of loans and surge in non-performing assets.
Going forward, restructuring is expected to increase led by some large-mid corporate accounts under CDR (corporate debt restructuring). Private banks' asset quality is expected to remain healthy due to lower restructured loans, lesser proportion of direct agricultural loans and better risk management.
A senior State Bank of India official today told that the bank was set to restructure loans worth 65 bln rupees between October and March, with 40 bln rupees likely to be recast in the current quarter. On Thursday, Fitch Ratings affirmed the BBB- long-term issuer default rating of State Bank of India, Punjab National Bank and Bank of Baroda, citing expectation of strong government support for these state-owned entities.
However, the rating agency downgraded Canara Bank's viability rating by a notch to bb+, citing its higher lending exposure to infrastructure sector, led by state electricity boards and a weak funding profile. Among smaller lenders, India Ratings maintained a negative ratings watch on Dhanlaxmi Bank on expectations of pressure on its capital base due to weakening asset quality and operating profit performance.
