Banking shares in the doghouse
Banking shares received a severe pounding due to a surprise move by RBI on Friday, increasing the cash reserve ratio (CRR) by 0.5% to 5.5%.
Private as well as public sector banks were under pressure today. Leading the pack, was Bank of India which plunged 9.20% to Rs 186.25, on a volume of 3.10 lakh shares. The stock had struck a high of Rs 204 in early trade.
Other major losers were Punjab National Bank (down 5.50% to Rs 523.50), SBI (down 6.10% to Rs 1,269.50), Kotak Mahindra Bank (down 2.05% to Rs 382), Indian Overseas Bank (down 4.55% to Rs 114.25), Bank of Baroda (down 5.50% to Rs 247), Oriental Bank of Commerce (down 4.99% to Rs 234), HDFC Bank (down 4.15% to Rs 1040), Canara Bank (down 5.11% to Rs 288), and ICICI Bank (down 4.87% to Rs 834).
The BSE Bankex tumbled 4.89%, or 353.03 points, to 6,860.71, after striking an intra-day high of 7,165.92.
The rate hike, which will be effected in two phases — 25 basis points each on 23 December 2006 and 6 January 2007 — is aimed at controlling inflation, while pushing up interest rates. Inflation rate as on 25 November, based on the wholesale prices index (WPI), stood at 5.3%, down from 5.45% in the previous week, while the economy grew 8.9% and 9.2% in the first two quarters of the year.
As CRR deposits with the central bank do not fetch any income, banks will be forced to hike deposit and lending rates to protect margins, analysts said. This rate hike — the first after September 2004 — comes at a time when credit is growing at 30%, compared with a deposit growth rate of just 20-22%.
The banking sector has outperformed other sectors during November 2006. The banking benchmark, BSE Bankex, has risen over 9%, beating other sectoral indices by a big margin. Robust economic growth had triggered the rally in banking shares.
Private as well as public sector banks were under pressure today. Leading the pack, was Bank of India which plunged 9.20% to Rs 186.25, on a volume of 3.10 lakh shares. The stock had struck a high of Rs 204 in early trade.
Other major losers were Punjab National Bank (down 5.50% to Rs 523.50), SBI (down 6.10% to Rs 1,269.50), Kotak Mahindra Bank (down 2.05% to Rs 382), Indian Overseas Bank (down 4.55% to Rs 114.25), Bank of Baroda (down 5.50% to Rs 247), Oriental Bank of Commerce (down 4.99% to Rs 234), HDFC Bank (down 4.15% to Rs 1040), Canara Bank (down 5.11% to Rs 288), and ICICI Bank (down 4.87% to Rs 834).
The BSE Bankex tumbled 4.89%, or 353.03 points, to 6,860.71, after striking an intra-day high of 7,165.92.
The rate hike, which will be effected in two phases — 25 basis points each on 23 December 2006 and 6 January 2007 — is aimed at controlling inflation, while pushing up interest rates. Inflation rate as on 25 November, based on the wholesale prices index (WPI), stood at 5.3%, down from 5.45% in the previous week, while the economy grew 8.9% and 9.2% in the first two quarters of the year.
As CRR deposits with the central bank do not fetch any income, banks will be forced to hike deposit and lending rates to protect margins, analysts said. This rate hike — the first after September 2004 — comes at a time when credit is growing at 30%, compared with a deposit growth rate of just 20-22%.
The banking sector has outperformed other sectors during November 2006. The banking benchmark, BSE Bankex, has risen over 9%, beating other sectoral indices by a big margin. Robust economic growth had triggered the rally in banking shares.
posted by SY at 1:22 PM
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