Bank stocks hammered further as S&P warns of downgrades

Banking stocks suffered another sell-off today after rating agency S&P warned of downgrades. The warning comes after state-run banks reported a combined loss of Rs10,727 crore, nearly equal to the Rs11,218 crore profit reported by their private sector counterparts.

Gross non-performing assets of public sector banks are just under Rs4,00,000 crore.

State Bank of India, the country's top state-run lender, fell 2.4 per cent, Bank of India plunged 5.1 per cent, and Punjab National Bank slumped 4 per cent on the back of a confluence of negative factors.

S&P said the rising capital needs put Indian public sector banks at risk of downgrades.

SBI chairman Arundhati Bhattacharya's comments that bad loans are likely to increase next quarter also spooked investors.

S&P BSE Bankex index is down 18 per cent this year on worries about bad loans in state-owned sector.

Fiscal third quarter results of major state-run banks revealed that the banks' finances are floundering on mounting losses. More horrendous is the level of bad loans they are staggering under.

The gross non-performing assets (NPAs) of public sector banks are just under Rs4,00,000 crore, and they collectively account for 90 per cent of bad loans in the entire banking sector in the country.

In terms of net NPAs, the share of state-run banks is even higher – at 92 per cent of the total bad loans reported so far in the banking system.

The market expects more bad news in the next quarter, when the Reserve Bank has asked banks to disclose the real story of their bad and stressed assets.