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Pressure on banking stocks transitory, experts say; SBI, ICICI Bank, Axis

The Nifty Bank index is down over 3 per cent in May so far against a 2 per cent fall in the equity benchmark Nifty 50. Nifty PSU Bank index is down 6 per cent this month so far, while the Nifty Private Bank index has declined 3 per cent.

Shares of Punjab National Bank have suffered a strong loss of 12 per cent this month despite the bank reporting a nearly 160 per cent year-on-year jump in Q4FY24 net profit to 3,010.27 crore.

Also Read: PNB Q4 results 2024: Net profit jumps 160% YoY. Key highlights you should know

Shares of HDFC Bank, Bank of Baroda, IndusInd Bank and IDFC First Bank have fallen 5-6 per cent in May.

Experts remain positive

Most experts are positive about banking stocks as they see no major concern in their fundamentals. The biggest reason behind the selloff in banking stocks appears to be the RBI’s proposal to tighten project financing norms.

“The recent pressure on banking sector stocks can be attributed to the RBI’s proposal to tighten project financing norms by setting standard asset provisioning of up to 5 per cent on loans. However, we believe that the recent reaction is more sentimental in nature and the overall outlook for the sector remains positive,” said Shreyansh V. Shah, a research analyst at StoxBox.

On May 3, the RBI issued a draft prudential framework for banks undertaking project finance. The framework proposed increasing standard asset provisioning to 1-5 per cent of loans from the current 0.4 per cent in a phased manner on project loans that are not overdue to stressed.

Also Read: Mint Primer | Infra financing guidelines: Why are banks upset?

Weak market sentiment due to Lok Sabha election-related jitters is another factor keeping banking stocks under pressure recently.

The Q4 numbers of several major banks were largely in line with estimates. Experts expect banking stocks to come back to focus after the election outcome.

“Banking stocks have reported in-line results, with lower provisioning and healthy credit growth aiding profitability. Regulatory diktats from time to time and over-ownership among institutional players may hinder further major rerating of banking stocks in general, although there may be a few exceptions. However, we may see interest in these stocks again (especially in PSU banks) after the election outcome on the expectation of reforms and divestment,” said Deepak Jasani, the head of retail research at HDFC Securities.

“The Q4 results of the banking sector were also mostly in line with market expectations. The NIMs showed mostly flattish trend to marginal deterioration, while asset quality remained stable. While loan growth remained robust, the highlight for this quarter was a pickup in deposits sequentially on…

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