Sensex flat, but bank stocks crash

stocks pulled down the stock markets on Monday on concerns that the rate cut by SBI and other banks would further hit their margins.

Banks are already burdened by the steep rise in bad loans.

While the Sensex recovered from a steep 200-point fall in morning trade, to close down by 0.12%, the banking index was sharply down by 1.2%; it had fallen by almost 2% in early trade.

“Investors are worried about the impact of the fall in rates on banks profits,” said s.

“But not doing anything after that surplus liquidity (demonetisation) is also costly as banks still have to pay 4% on the savings deposits.”

Since November 10, SBI saw net growth in deposits of ₹1.65 lakh crore till December 30, leading the bank to cut home loan rates by 0.9% from January 1, the steepest cut ever.

SBI’s move has since been followed by ICICI bank, which has also cut its rates by 0.70%, and Kotak Mahindra, by 0.45%.

On the Bombay Stock Exchange, SBI was down by 2.4%, ICICI 1.3% and HDFC Bank 0.57% on Monday.

SBI chairman Arundhati Bhattacharya, however, said that the spread on the rate – the quantum of profit that bank makes – is also much larger at 65 basis points, compared to an average of 25 basis points. Higher the spread, higher is a bank’s margin.