Banking stocks tumble up to 3% on interest rate, NPA concerns

Banking stocks such as PNB, ICICI Bank, SBI and Canara Bank fell up to nearly 3 per cent in trade on Tuesday on worries that a widely anticipated US interest rate hike by the Federal Reserve may prompt the Reserve Bank of India to keep key interest rate unchanged for longer.

Worries over ballooning non-performing assets (NPA) of banks also dragged banking stocks. NPA is a technical term for bank loans gone bad.   

Bank Nifty, the gauge for banking stocks, shed 0.94 per cent to 16,188.05 in intraday trade but recovered at the fag end of the session to close 0.29 per cent higher at 16,398.65.

State-owned Punjab National Bank was the worst-performing stock on Bank Nifty and declined 2.73 per cent to Rs 121.30 on the National Stock Exchange (NSE).
   
Other state-run banks such as State Bank of India and Canara Bank hit intraday lows of 0.6 per cent and 1.89 per cent, respectively on the Bombay Stock Exchange (BSE).  

The stock of ICICI Bank ended 1.04 per cent lower after hitting a 19-month low of Rs 242.95, down 2.41 per cent on the BSE.

The RBI kept its key lending rate unchanged in its last monetary policy meeting held on December 01, leaving the door open for more easing but making that dependent on meeting a challenging inflation target for calendar year 2017.

Investors have mostly priced in a Fed rate hike this week, with the main question now hinging on how many increases will follow next year.

The US Federal Reserve will move very gradually after it delivers what is widely expected to be its first interest rate hike in nearly a decade on December 16, according to a Reuters poll that points to a tame inflation outlook for next year.

"(RBI) Governor (Raghuram) Rajan will keep an eye on Fed's comments before deciding on the future interest rate trajectory," said Deven Choksey, managing director at K R Choksey Securities.

Banks with larger exposure to corporate loans are reeling under pressure to recover bad assets. The Reserve Bank of India (RBI) recently announced fresh guidelines to enable commercial banks to acquire a majority stake in companies that are unable to repay loans and come under the strategic debt restructuring (SDR) scheme.

However, some analysts have questioned the ability of banks to sell these stressed assets in the 18 months given to them under the scheme.

(With inputs from Reuters)