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Stocks of most banks are seen firming up in the coming week in line with trend in broad equity markets, with expect eyeing cues from Jul-Sep earnings of key banks like State Bank of India. The focus will also be on stocks of banks like Allahabad Bank, Canara Bank, Andhra Bank, Central Bank of India, Dena Bank, UCO Bank, Corporation Bank that will detail their Jul-Sep results in the coming week. Trends from Jul-Sep earnings for all large private banks like HDFC Bank, ICICI Bank and Axis Bank show improvement in asset quality, while nearly all state-owned banks have shown sharp rise in non-performing loans, which has impacted profits adversely.
On Tuesday, SBI Chairman Pratip Chaudhuri said that Jul-Sep asset quality performance for the bank had been better that Apr-Jun, where the bank saw a sharp jump in non-performing assets. Market has already factored in lower growth and higher asset quality deterioration for most banking stocks on account of the weak economic environment, but believes that more surprises like increase in provision for standard recast loans could lead to pressure on bank stocks.
On Tuesday, the Reserve Bank of India raised the provision requirement for standard restructured loans by 75 basis points to 2.75%. In an ominous sign, RBI Deputy Governor Anand Sinha indicated that the move was an interim measure and the banking regulator was studying an expert panel report that had suggested 5% provisioning on such restructured loans. Market is eyeing Union Bank of India scrip favorably following strong Jul-Sep results, where it managed to post a 57% jump in net profit.
