Banking stocks pounded on rates

A day after banks raised deposit rates, stocks of companies in the sector fell on concerns that their profit margins could be hit.

A day after banks raised deposit rates, stocks of companies in the sector fell on concerns that their profit margins could be hit.

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Bankex, the banking index of Bombay Stock Exchange (BSE), fell 2.9 % on Tuesday as shares of State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, HDFC Bank, Bank of India (BoI) and Bank of Baroda (BoB) fell by up to 4%, while the Sensex closed at 19,935 — marginally down by 0.23%.

Struggling with shortage of liquidity, SBI and other banks have announced they are hiking deposit rates to attract depositors and mobilise funds.

But investors gave thumbs down to the decision on fears that profit margin of the banks will come under pressure by rate hike and maintained distance from the banking stocks.

“Given the environment of tight liquidity and slow deposit mobilisation (7% year-to-date deposit growth against 10% credit growth), we believe cost pressures will be more prevalent and the impact will be disproportionate across banks, with relatively weaker franchises getting impacted more,” says the banking report of Edelweiss Securities.

Going forward, conditions are likely to get tighter with advance tax outflow due in mid December, which sucks out excess liquidity from banks.