Banking stocks tumbled on Friday on the back of the central government’s announcement of 32% increase in its borrowing plan for the second half of the financial year 2012. The Bombay Stock Exchange banking index (Bankex) closed at 10,850, down by 204 points or 2% on Friday, on a day when the Sensex closed at 16,454, down 244 points or 1.5%.
The government on Thursday said it would borrow an additional Rs 52,872 crore from the market in the second half, raising its borrowing programme to Rs 4.7 trillion, 12.5% higher than what was originally envisaged in the budget.
India’s largest lender State Bank of India shares closed at Rs 1,911 down 2%, ICICI Bank’s shares closed at Rs 875 down by 1.6%, Punjab National Bank shares were down 2% at Rs 947, HDFC Bank closed at R467 down 1%. Axis Bank was the biggest loser in the sector with shares falling 4% to close at Rs 1,022.
Axis Bank, on Thursday rolled out fixed home loan for life (20 years) at 11.75%.
Increased borrowing will lead to the higher bond yields that would hurt banks because of the negative impact it would have on the value of their bond portfolio, forcing them to take mark-to-market losses. Also, there may be liquidity shortage for banks going forward.
“There will be pressure on banks going forward as increased government borrowing is expected to create shortage of liquidity for the banks,” said Rajiv Mehta, banking analyst at India Infoline.