Topsy-turvy ride for bank stocks since recap plan
PNB fraud, tepid Q3 add to volatility; extraordinary situation for PSBs

It has been a roller-coaster ride for PSU banks ever since the government announced the recapitalisation plan on October 25 last year. State-owned lenders had recorded gains of 20 to 50 per cent that day. Cut to February 14 this year, the day a massive fraud was reported by the PNB. Share prices since then have plunged by 18-53 per cent. Reeling under selling pressure, PSBs again attracted buying, thanks to short-covering. In the past two days, all PSU banks were up between 3 and 12 per cent.

Punjab National Bank, which is hogging headlines for all the wrong reasons, had gained the most — around 50 per cent — on October 25. Now, all the gains have been washed out after it reported over Rs 12,000 crore fraud. It has fallen 53.14 per cent from its peak level post-re-cap plans. IDBI Bank and Central Bank of India, however, managed to buck the trend during the October 25 to March 12 period to some extent. They lost only 0.76 per cent and 17.85 per cent, respectively, as they have already been subject to detailed scrutiny. Their finances have come under close watch of the regulator and market investors on account of bad loans and other lingering issues. As their NPAs are being controlled and viable solutions are being looked at, stocks are now less volatile.

Banks inability to sustain gains was also attributed to absence of a clear-cut implementation strategy for recap. Tepid third quarter results was another reason. State Bank of India’s (SBI) third quarter result was not liked by the market and stock drifted lower. The largest PSU bank had reported additional Rs 26,800 crore slippages, two times the estimates of analysts. Due to diversion of funds towards provisioning, SBI reported a loss of Rs 2,416.37 crore in the October-December 2017 period.

SBI’s large provisioning had already dampened market sentiment towards PSU banks much before the PNB fraud surfaced.

“This is an extraordinary situation that public sector banks are facing right now. It was unimaginable that a fraud of this large magnitude can happen at the country's second largest public sector bank (Punjab National Bank). As a result, there is apprehension among investors about the systems, processes at public sector banks,” said an analyst. Sameet Chavan, chief analyst, technical and derivatives, Angel Broking, said: “PSU banks finally showed some life as we saw massive bounce back in these beaten down counters. This was clearly on cards since they were deeply oversold, a possibility of further relief rally cannot be ruled out.”

Analysts expect improvement in PSU banks’ NPA situation with recoveries and slower pace of fresh NPA reporting.

Rating agency Crisil in its outlook for PSU banks for the remaining nine months of 2018 said, “Determined, concerted efforts to pull the banking sector out of the abyss of sour loans is beginning to make a difference with large-ticket corporate stressed assets -- particularly four from the steel sector -- reaching the penultimate phase of resolution.”

“The top 50 corporate stressed assets constitute bulk of the gross non-performing assets (NPAs) in the banking sector. Of this, the steel sector comprises the highest exposure at 30 per cent, followed by construction and power,” Crisil said.

With nearly half of the large corporate NPAs now referred to the National Company Law Tribunal (NCLT) under the IBC route, resolutions will reduce the pile of bad loans in the medium term, Crisil said.