about 9 months ago
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Did you look at how the private sector banking index has collapsed today?

Its intra day trade showed a loss of almost 425 points, hitting all-time record low. Out of the 12 banks covered in this index, 11 are in the red; the only stock which is in the reckoning is HDFC Bank; rest all are falling. RBL Bank is moving the fastest towards gravity – the biggest loser in the index.

Long term investors looking for bargain buys in such a time wondered whether RBL Bank was a good buy at this rate today? But the word on the Street – one does not know why its falling; maybe something is amiss; best to wait rather than get stuck.

This is the kind of fear psychosis which has taken over the market sentiments today. The recovery is so fragile – almost like a house built of cards; one whiff of wind and it all comes collapsing down.

Once again, there is fear mongering that the private sector banks are facing some serious NPA issues. The ongoing saga with Yes Bank was not enough when IndusInd too took over. The market was agog with news of its about its huge exposure to Indiabulls Housing Finance Ltd (IHFL). The company issued a clarification yesterday stating that as of September 29, 2019 closing, the bank's gross exposur (aggregate of funded and non-funded) to the HFC, its subsidiaries and associate finance companies stands at approximately 0.35% of the loan book. The bank said that exposure is fully / strongly collateralised wilh no overdues. 'The group also maintains equal or higher amounts of unpledged fixed deposits with the bank. Obviously, the marketmen are not convinced and continue to remain cautious. Thus is complete lack of faith – no one believes what the bank management says any more.

The fear psychosis is that there is another round of stressed asset problem coming our way, emancipating from the NBFC sector. As at 31st July 2019, banks exposure to NBFCs was at Rs.6.4 trillion. Major chunk of this is from the private sector banks.

The resolution plan of DHFL has not gone down too well as the growing fear is that the haircuts to banks will be large and the debt-equity conversion proposed is expensive. Add to that the crisis at Indiabulls Housing Finance. The merger with Lakshmi Vilas Bank coming under a cloud and PILs filed against the company for money misappropriation, fraud among other things has got the market really on the edge. Banks have loaned a huge amount of money to Indiabulls and this current crisis on confidence in Indiabulls group and other NBFCs has spread out to the private sector banks – the ultimate victims.

There are no soothing words here, no reassurances that , “sab theek ho jayega,” and we certainly do not know, at this juncture the extent of exposure these banks have in the NBFC sector and how it will impact. The underlying truth at the moment – there is stress on bank street and we do not how many will get hit and maimed.

The market is thus caught up on a psychology of crowds where instead of the usual dose of greed and fear, only fear seems to rule Dalal Street. It is like a fight club – fight or flight – first sell and then ask why.  All have got into a bunker, thinking the sky is going to fall.

Fear is more powerful than greed and we could see more of this behavior as the Q2 earnings come in. Maybe we are the rock bottom or maybe there is some more to go before the clean-up happens and we rise up. But for now, fear is riding the bears on Dalal Street.

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