GOLDEN RULES FOR TRADING

Bank Stocks Outlook for the week - 01 to 05.07.2013

 rupeedesk.in

Bank stocks are likely to trade with a positive bias in the coming week on short covering, and will be supported by steady improvement in the market. The rupee's turnaround after hitting an all-time low of 60.75 a dollar on Wednesday also provided some solace to market participants. Yesterday, the Indian currency ended at 59.3850 a dollar, up from 60.1900 on Thursday. However, the impact the rupee's fall so far can have on loans given by banks to export-linked sectors. Rupee depreciation may affect individual banks directly or/and indirectly. The indirect effects of the exchange rate depreciation on the banks may be more severe in the current macro conditions. The rupee's depreciation in a slowing economy is compressing corporate margins, creating difficulties in making repayments to banks. 

Though banks have brought down unsecured loan book exposure and contingent liabilities during the year, risks to asset quality persist as exposure to risky segments continues to increase. Additionally restructuring remains high and non-performing assets stand largely unseasoned. As a result, going ahead, we could see higher provisioning as NPAs begin to season. We could also witness higher NPAs from risky segments as well as slippages from restructured accounts all of which would have a negative bearing on the financials of banks.