Moody’s : The loan moratorium was extended by the banks and non-banking financial institutions have been termed by many as being one of the biggest risks that the banking and financial services industry is staring at in the near future. Both sounded the alarm bells cautioning the situation at Indian banks could be much worse than that was perceived earlier. Although, share markets are not mirroring the fear. 4 of the top five performers on BSE Sensex were from the BFS industry while Nifty Bank and Nifty Financial Services rallied on Tuesday.
“Stock market is feeling that there’s more action which the govt might come up with, that’s why these stocks have come up,” as Abhimanyu Sofat, the top of Research IIFL Securities told Financial Express Online. Bajaj Finance the top gainer on BSE Sensex surging 8%, that followed by Kotak Mahindra Bank, up 7.5%. Financials continued their upwards trajectory with Nifty Bank gaining around 17% in the last one week and Nifty Financial Service surging close to 18%. On Tuesday Moody’s followed its rating action on India’s sovereign rating by downgrading key banking institutions like HDFC Bank and depository financial institution of India that, along side Export-Import Bank.
“If you look from the asset side then private banks contribute only ~35% of the banking system and also remaining bare public sector banks. The Public sector banks continued to trade at multi-year lows. Only selected private banks are trading at relatively higher levels,” as Asutosh Mishra, the top of Research Institutional Equity at Ashika Stock Broking told.
In accordance with Fitch Ratings, the latest set of measures announced by the Reserve Bank of India that includes an extension of the 90-day moratorium, along with additional relaxations in bank lending limits. “These measures will put an important onus, particularly on state banks to bail out the affected sectors, thanks to their quasi-policy role, considering that much of the state’s recently announced stimulus measures are in the form of new loans,” as Fitch said.
Moody’s told that the persistent stress among banks and also non-bank financial institutions weigh on growth dynamics through the constrained supply of the credit for consumption and investment. “If you’ve got forex reserves you’ve got put it in US Treasuries, domestically you’re paying 6%-7% for debt so why not borrow money at something around 1% from international markets instead of yourself deploying such heavy cost forex reserves at a minimal return.