SBI, PNB, BoB slip up to 4% as US-Iran tension push bond yields higher

Banking counters, including Punjab National Bank, Bank of Baroda, State Bank of India, and Canara Bank slipped over 4 per cent on the National Stock Exchange (NSE) in the early deals on Monday as heightened tensions between the United States and Iran pushed bond yields higher in India.

US President Donald Trump on Sunday vowed "major retaliation" if Iran tried to avenge the death of its key military commander Qasem Soleimani, who was killed by the US military on Friday. In response, Tehran decided to "abandon the limits, imposed on it, under the 2015 nuclear deal".

Brent Crude Futures surged nearly 3 per cent to trade at $70.45 per barrel-mark at 9:54 am, while WTI was at $64.53 per barrel-mark, up 2.35 per cent. Higher crude oil prices could put pressure on inflation, which could prompt the Reserve Bank of India (RBI) to hold interest rates steady.

"Given India’s sensitivity to global crude oil prices, any sustained spike led by geopolitical risks may naturally lead to depreciation pressure on the rupee and increase in bond yields, with other things being equal,” says Kaushik Das, India chief economist, Deutsche Bank. The rupee hit its lowest level against the US dollar in the early deals today at Rs 72 .01, while bond yields were trading 0.66 per cent higher.

Among key public bank counters, PNB declined 4.7 per cent, Punjab and Sind Bank (4.6 per cent), Canara Bank (4.4 per cent), Bank of Baroda (4.1 per cent), and SBI (3.4 per cent). That apart, J&K Bank, Union Bank of India, Bank of Maharashtra, Bank of India, and Indian Bank were down in the range of 1.8 to 2.8 per cent at 10:05 am.

In comparison, the benchmark Nifty50 index was at 12,092.30 level, down 134 points or 1.1 per cent. The Nifty PSU Bank index, too, was trading as the biggest loser on the NSE, down 3.13 per cent. Notably, Indian Overseas Bank defied the gravity, and zoomed 9.4 per cent on the NSE after the government infused Rs 4,360 in the bank as part of its capital infusion plan.

"The bank has received an amount of Rs 4,360 crore today towards contribution of the Central Government in the preferential allotment of equity shares (Special Securities/Bonds) of the Bank during the financial year 2019-20 as Government's investment," it said in a statement.

Besides, private banks on the Nifty Bank index such as RBL Bank, The Federal Bank, YES Bank, IDFC First Bank, ICICI Bank, IndusInd Bank, Axis Bank and HDFC Bank lost up to 2.5 per cent.

Apart from higher yields, mood at the financial counters was dampened on report that the government may not propose fresh capital infusion under Union Budget 2020, and will rather encourage them to expedite recovery of bad loans and raise funds from the market.

According to a report by news agency PTI, banks may be asked to divest or sell their non-core business as part of fund raising exercise during 2020-21. Additionally, banks may be asked to depend on the "robust pipeline of recovery from the resolution of both NCLT and non-NCLT cases" during this calender year and also maintin headroom for raising capital from the market.