If you were invested in the conservative, public sector banks, it is now your turn to don that smug smile.The looming crisis in the US financial sector has left a clear division among the stock exchange-listed banks in India. While public sector banks have given positive returns in the last fifteen days, the darlings of the private sector have fallen behind the average.
According to Bloomberg data compiled by Hindustan Times, public sector banks have quietly begun leaving their private brethren behind since the big banks started failing in the US. In the last fifteen days, a slew of big banks and insurance companies have ended in deep trouble after their ability to pay back debt suffered serious blows.
Banks, including ICICI, HDFC, Federal Bank and Yes bank, have on an average lost money, while state-run State Bank of India, Union Bank and Bank of Baroda have shown high single or even double-digit growth.
“Private sector banks, led by ICICI Bank are suffering due to the exposure to foreign debt, and there is a lack of clarity in their disclosures,” said Bhavesh Kanani, analyst, Sharekhan, a Mumbai-based market advisory. “There is widespread feeling that bad news is not over yet,” he added.
There is however, some good news. Since the exposure to bad debt is not very widespread, and that bond yields have come down, private bank stocks may begin to look up once again soon.
“All said and done, the Indian market still has less exposure to riskier instruments. So in the long term, outlook is good,” said Rajiv Sampath, a Mumbai-based independent investment advisor.
The real issue, according to experts, is the fear of delinquencies by the private sector banks. Though there is little in terms of risk associated with the banks that has been declared, the sheer size and influence of banks such as ICICI means any bad news that comes from ICICI depresses the mood of investors. “The government has put in place checks and balances, however, there is no restrictions in investment decisions made by banks,” Kanani said.