Mounting bad loans have seen sharp erosion in the market capitalization of state-run banks. While 48% of PNB’s value has eroded year to date, Bank of India and Union Bank of India aren’t far behind witnessing a fall of 41% and 39%, respectively. Some private banks like ICICI and Axis banks are also facing corporate governance issues.
This has led investors to turn their attention to small finance banks and select non-banking financial companies (NBFCs). Mid-sized private sector banks such as IndusInd Bank and Yes Bank have increased their market share at the expense of other downtrodden banks.
With governments including farm loan waivers in their manifestos to woo the voters and general elections in 2019, going forward, there can be some persistent pressure in national and co-operative banks. Year to date, BSE’s Sensex and Bankex index have risen 4.40% and 3.06%, respectively, ICICI Bank and Axis Bank shares have lost 1.29% and 1.80%, respectively. While their peers, HDFC Bank Ltd and Kotak Mahindra Bank Ltd, have gained 7.88% and 25.75%, respectively.
Stocks to be positively impacted
AU Small Finance Bank (CMP: Rs 704, Market Cap: Rs 21,034 Crores, FY2020 P/B: 6.22), Equitas Holdings Ltd. (CMP: Rs 165, Market Cap: Rs 5,596 Crores, FY2020 P/B: 2.07)