Banking index deep in red

Banking Index continues to remain deeply in the red. The BSE Bankex is down almost 4% with all the 10 stocks covered in the Index on a decline.

All the leading PSU banks have hit a new 52-week low today. SBI, PNB, IOB, Punjab & Sind Bank, Allahabad Bank, Canara Bank, Dena Bank, Vijaya Bank, Syndicate Bank. In the private sector bank, ICICI Bank too hit a new low and so did Federal Bank.

The reason for this wide spread pessimism in the banking stocks is the call from RBI Governor to change the methodology of computing the base rate for banks, which is now to be based on marginal cost of funds. Draft guidelines for the same have been issued and is expected to come into effect from 1st April 2016.

Rating agency CRISIL has put out a report stating that this change will impact the profitability of the banks as RoA, due to this change will fall by around 20 bps in 2017.

CRISIL has stated that its base-case is that profitability of banks will have one-time impact of around Rs 20,000 crore in fiscal 2017, which would be equal to 15% of the total estimated profit of the banking system for that year. The actual impact will depend on whether the banks will be given a leeway to make this shift over a longer timeframe in the final guidelines.