Since the last two weeks from around 4th May, the entire NIFTY BANK index has been witnessing a lot of pressure and major bank stocks including both private as well as public sector banks are falling, however, there was recent positivity when PM Narendra Modi and Finance Minister Nirmala Sitharaman announced a special economic package worth Rs. 20 lakh crore which comprises roughly 10% of Indian GDP to boost the economy.
One of the major reasons for this added pressure is due to the bleak economic outlook, investors are fearing that banks and other NBFCs may see a rise in Non Performing Assets (NPAs) as a result of defaults on loans that may arise on account of operational halts arising due to COVID-19. Operations across various sectors have begin to witness serious impact. Recently, Bernstein downgraded the target for HDFC Bank to nearly half in March 2020. HDFC bank is the top private bank in India and it has been witnessing an added pressure since then however in a statement, the MD of HDFC Bank mentioned that around 85% of loans from HDFC Banks are to salaried employees which may protect their rise in NPAs once we start seeing signs of recovery.
The private brokerage firm ICICI Securities downgraded the target for Axis Bank from Rs. 821 to Rs. 521 while JP Morgan called the quarterly results of the bank as mixed. In a similar way, State Bank of India on account of bail-off to Yes Bank has been witnessing a fall in prices and the targets of the bank should be lowered by 20-35% in my personal view.
The loan book growth across various banks may take a hit on account of closed down businesses and economic halts across industries and sectors.
"With the lack of any major private sector, Capex in the current fiscal, system credit growth was largely driven by the retail segment, which contributed nearly 91 percent of incremental credit during the year up to January 2020. We believe COVID-19 may further delay private CAPEX revival and also decelerate the retail loan growth trajectory," said ICICI Securities.