Bank shares take a hit after HDFC Bank cuts base rate

State Bank of India shares fell 3.24 per cent on Tuesday to close at Rs 239.10 apiece after HDFC Bank's cut its base rate on Monday to gain market share. The cut is aimed at getting SBI's 20 per cent market share in loan and deposits, analysts said.

HDFC Bank currently has 5 per cent market share in loan and deposits, analysts added. Price leadership in cutting its benchmark lending rate by an aggressive 35 basis points will likely accelerate its market share gains, financial services holding company Credit Suisse said. "The rate move is a marked deviation as SBI has usually been the prime mover. It also strengthens argument of HDFC Bank's aggression towards market and wallet share gain," global investment bank Jefferies said.

HDFC Bank base rate cut has sparked net interest margin (NIM) worries.

YES Bank closed 3.35 per cent down, HDFC Bank fell 2.68 per cent at close while Indusind Bank was down 3.09 per cent to close at Rs 830.40 on Tuesday. HDFC Bank has cut base rate by 35 bps to 9.35 per cent from Tuesday. After this cut most banks base rates are 35-65 bps higher than HDFC Bank and they will have to take some hit on NIMs if they match it, analysts said.

Punjab National Bank fell 6.94 per cent at close after Fitch downgraded its viability rating by one notch to 'bb'. IDBI Bank, which closed 5.94 per cent down, is also vulnerable to a downgrade given deterioration in the stressed asset ratio, Fitch said.
 

(With agency inputs)