Foreign institutional investors (FIIs) have cut their exposure in public sector banks (PSB) for the second straight quarter amid concerns over worsening asset quality.
Overseas investors have reduced their holdings in most of the frontline PSBs such as State Bank of India (SBI), Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), Bank of Baroda (BOB), Bank of India (BOI) and Canara Bank by up to three percentage points in April-June quarter.
In Andhra Bank, Uco Bank, IDBI Bank, Syndicate Bank, Indian Overseas Bank and State Bank of Mysore, their stake was declined by less than one percentage points, according to shareholding pattern filed by these banks.
Industry’s credit growth, which is running at multi-year lows, will continue to exert pressure on top-line growth of banks, especially the public sector undertaking (PSU) players that are facing capital and asset quality challenges.
Total 25 public and private sector banks, so far disclosed their June quarter shareholding patterns, reveals that FIIs have reduced their stake in 20 banks and increased in five – DCB Bank, Karnataka Bank, South Indian Bank, Indian Bank and Corporation Bank by marginally during the recently concluded quarter.
As a result, PSU banking index on the National Stock Exchange has under performed the market. Thus far in 2015, CNX PSU Bank index has tanked 21%, as compared to 2% rise in CNX Nifty and unchanged in Bank Nifty.
Excluding State Bank of India and its associates, the remaining PSBs had posted 38% year-on-year decline in their aggregate standalone net profit at Rs 4,407 crore for the quarter ended March 31, 2015. The 21 PSBs had a combined profit of Rs 7,090 crore in March 2014 quarter, Capitaline Plus data shows.
"On asset quality front, while private banks are unlikely to spring negative slippages surprise, for PSU banks incremental stress will be high and any meaningful dip in loan impairment will lag economic growth," analysts at Edelweiss Securities said in a Q1 results preview note.
"We expect private sector banks to witness 13% year-on-year (YoY) growth, while PSBs are expected to report negative growth at 16% YoY. Net interest income (NII) growth is likely to remain in lower double-digits of 11% YoY during 1QFY16 on the back of tepid credit growth and absence of room for margin expansion," analysts at Antique Stock Broking.
Analysts at Bank of America Merrill Lynch expect the net profit growth to be weak across government banks y-o-y owing to weak top line growth, higher provisions and lower gains from treasury. Operational level earnings growth likely will be also weak for most government banks on weak top line and fees.
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