Banking stocks fall on RBI stress tests over bad loans

Banking stocks led declines on Friday after the Reserve Bank of India's(RBI) stress tests surprisingly showed private banks are likely to see asignificant jump in bad loans.

The central bank also believes the probability of slippageof state electricity boards' exposure to bad loans is very high, considering theimplementation of new regulatory norms effective April 1, 2015.

According to the report released by RBI on Thursday, theability of India's debt-burdened firms to repay has worsened as leverage hasincreased, straining a banking sector burdened by bad loans.

Banking stocks on the Bombay Stock Exchange (BSE) plunged upto 2.5 per cent in afternoon trade on the news. At 12.32 pm, HDFC Bank, ICICIBank and State Bank of India were trading 1.28 per cent, 1.93 per cent and 1per cent lower at Rs 1054.90, Rs 309.90 and Rs 262.90, respectively. All otherbanking majors were also trading in red. The BSE Bankex was down 1.45 per centat 20,907.47 at the same time.

"The situation on bad loans and state electricity boardis bad but not alarming. My best is that industrial economy would turn aroundand avert this crisis," said G. Chokkalingam, founder of Equinomics, aMumbai-based research and fund advisory firm.

Meanwhile, 30-share BSE Sensex was trading at 27,714.56,down 181 points against its previous close.

(With inputs from Reuters)