Bank stocks under pressure as lenders flag stress in MFI portfolio, weaker asset quality

Bank stocks were under pressure on October 25 in an overall weak market led by 20 percent drop in IndusInd Bank shares as it flagged stress in its micro-finance portfolio and deteriorating asset quality picture. Others like AU Small Finance Bank, Canara Bank, PNB, IDFC First Bank, and Bank of Baroda also bore the brunt of the worst of selloff and declined in the range of 2-6 percent.

Apart from IndusInd Bank, Kotak Mahindra, RBL Bank, and AU Small Finance Bank have reported stress in their asset quality, with significant increase in bad loans driven by stress in credit card and microfinance loans.

IndusInd Bank, in its latest second-quarter update, reported a surprise 39 percent year-on-year drop in net profit due to higher provisions, shrinking margins, and worsening asset quality. Following a disappointing Q2 performance, brokerages slashed target prices of the lender. Nuvama Institutional Equities, for instance, cut target price to Rs 1,290 apiece and downgraded the stock to 'hold' from 'buy.'

ALSO READ: IndusInd Bank sees higher provisions as one-time profit hit, expects gradual easing of MFI stress