May 22, 2020 / 4:13 AM / 10 days ago

Sensex, Nifty slide as RBI loan relief hits banks

BENGALURU (Reuters) - Indian shares slid on Friday, as banks suffered following the central bank’s decision to cut policy rates and extend a relief period for loan repayments by borrowers in an effort to contain the economic fallout of the COVID-19 pandemic.

A woman walks past the Bombay Stock Exchange (BSE) building in Mumbai, India, January 31, 2020. REUTERS/Francis Mascarenhas/File Photo

The Reserve Bank of India’s (RBI) moves come as a weeks-long lockdown to curb the spread of the novel coronavirus threatens to push Asia’s third-largest economy into recession.

While some analysts welcomed the steps as much-needed relief for the economy, banking stocks slid as investors fretted over the impact of the moratorium on banks’ already huge pile of bad, or non-performing, loans (NPAs).

“For shareholders of banks, it is a negative, because banks are only postponing the pain,” said Deepak Jasani, head of retail research at HDFC Securities. “Investors would want the pain to be recognised upfront rather than pushing it. The NPAs can also get magnified, the longer you wait.”

Other analysts said markets could be disappointed over the lack of any announcements from the RBI on a one-time restructuring of bank loans.

The NSE Nifty 50 index was down 1.14% at 9,002.55 by 0630 GMT, while the S&P BSE Sensex was down 1.16% at 30,575.15.

The Nifty banking index, one of the worst performing sectors this year, fell 2.5%. The top six drags on the Nifty 50 were all banks or finance companies. The nation’s top mortgage lender HDFC Ltd fell 4.1%.

India’s benchmark 10-year bond yield fell by 10 basis points to 5.85% after the rate cut, before climbing back to around 5.92%.

The moves came as renewed U.S.-China tensions cast doubt on a trade deal between the world’s two largest economies, dragging stock markets across Asia lower.

In India, the Nifty metals index fell 2.2%. China is one of the world’s largest producers and consumers of metals.

Reporting by Sachin Ravikumar; additional reporting by Savio Shetty in Mumbai; editing by Patrick Graham

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