Bank stocks gained for the second straight day on hopes of better fiscal health after the government announced on Monday that the country’s fiscal deficit for FY14 would be contained at manageable levels.
The S&P BSE Bankex gained 2.34% on Tuesday, emerging the highest sectoral gainer for the second consecutive day. ?Banks stocks have seen a relief rally in the past two days as banking has been one of the worst performing sectors for some months now,? said Sonam Udasi, head ? research, IDBI Capital. The BSE Bankex slid 9.4% in 2013 and has shed 7.1% in the year to date.
Top gainers included Axis Bank (4.4%) and Kotak Mahindra Bank (up 4.4%). The government is reportedly planning to sell stake in Axis Bank in FY14. Other top gainers among private banks included HDFC Bank (1.5%), Yes Bank (1.15%) and ICICI Bank (2.8%).
Among PSU banks, State Bank of India (1.7%), Canara Bank (1.9%), Union Bank of India (2.09%), Bank of India (1.45%), Bank of Baroda (0.74%) and Punjab National Bank (1.9%) gained.
In his interim Budget speech, finance minister P Chidambaram said the fiscal deficit for 2013-14 would be contained at 4.6% of GDP ?well below the red line that I had drawn last year?. He added that the economy was more stable today than it was two years ago. ?The fiscal deficit is declining, the current account deficit has been contained, inflation has moderated, the quarterly growth rate is on the rise, the exchange rate is stable….?
Banks have been grappling with asset quality and credit growth concerns for some quarters now, and those concerns still remain, cautioned Udasi. ?It will take at least two quarters for the situation to improve. Unless the country’s GDP growth comes back to around 5.5% levels, it will be difficult for things to improve.?
The government said on Monday it would set aside Rs 11,200 crore by way of capital infusion in public sector banks for FY15. The finance minister has also extended interest subvention scheme on farm loans for one more year. There is a subvention of 2% and an incentive of 3% for prompt payment, thus reducing the effective rate of interest on farm loans to 4%.
Udasi believes that fund infusion of R11,200 crore may not be adequate. ?It’s largely the PSU banks that are struggling but even the private sector banks have asset quality concerns,? he said.
