The BSE's banking sector index Bankex lost 2.95% to 4,150.85, underperforming the the BSE Sensex's 0.74% fall to 8,836.44.
HDFC Bank (down 1.52%), ICICI Bank (down 5.52%), State Bank of India (down 0.80%), Axis Bank (down 4.35%), Kotak Mahindra Bank (down 1.74%), Indian Overseas Bank (down 1.38%), Bank of Baroda (down 2.14%), and Bank of India (down 1.50%), declined.
Bank credit showed a seesaw growth as per the latest data put out by the Reserve Bank of India (RBI) on Wednesday, 25 February 2009 evening. Credit offtake was slower at Rs 26.46 lakh crore and the CASA (current account and savings account) shrunk by Rs 4,969 crore in the fortnight ended 13 February 2009 over the past fortnight.
However bank credit grew by Rs 10,000 crore during the fortnight ended 13 February 2009, from a decline by Rs 8,000 crore in the previous fortnight ended 30 January 2009.
Inflation based on the wholesale price index rose at a 15-month low pace of 3.36% for the year through 14 February 2009, much lower than previous week's annual rise of 3.92%, data released by the government today, 26 February 2009, showed.
In stark contrast to a solid surge in 2008, inflation has been declining sharply in the calendar year 2009. The market has been agog with expectations of rate cut by the Reserve Bank of India (RBI). The sharp fall in inflation has provided room for the RBI to cut interest rates further to support faltering economic growth.
As per reports, RBI governor D Subbarao will meet select heads of banks on Friday, 27 February 2009 evening to hold discussions on issues like credit flow and liquidity conditions.
Despite a steep cut in policy rates in India since October 2008, there has not been a commensurate reduction in lending rates by banks as fears of rising bad loans have made banks cautious in increasing advances.
Bank shares rose saw a mild rally on Wednesday, 25 February 2009 as customers are likely to see reduction in charges for credit card, loan processing and foreign exchange among others because of a 2% service tax cut announced by the government on Tuesday, 24 February 2009. HDFC Bank (up 1.15%), ICICI Bank (up 1.38%), State Bank of India (up 0.86%), gained.
Gains on Wednesday, 25 February 2009 came despite global ratings agency Standard & Poor's Ratings Services revising the credit ratings of 12 Indian banks to negative from stable following its earlier downgrade of India's sovereign rating. The twelve banks in their list are Axis Bank, Bank of Baroda, Bank of India, Canara Bank, HDFC Bank, ICICI Bank, IDBI Bank, Indian Overseas Bank, Indian Bank, State Bank of India, Syndicate Bank, and Union Bank of India.
In its downgrade of India's sovereign rating, S&P said the country's fiscal position has deteriorated to a level that is unsustainable in the medium term.
Also the recent rise in bond prices is likely to hit bank's treasury profits in the January- March 2009 quarter.
The BSE Bankex underperformed the market over the past one month till 25 February 2009, declining 4.63% as compared to the Sensex's rise of 2.63%. It also underperformed the market in the past one quarter, falling 2.02% as compared to the Sensex's 2.38% rise.
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