Mumbai: The shares of PSU banks were hammered badly after the government of Maharashtra decided to waive off farm loans of small and marginal farmers raising concern about further stress in the banking system.
Sentiments also remained subdued ahead of the release of key macro-economic data like the retail inflation and IIP data.
“Frequent farm waivers create expectations of future waivers and can be serious disincentive to delay or stop loan repayments. NSSO study suggests that 60 per cent of farm credit is originated by institutional sources. Greater share of PSU banks in farm credit, which are considered quasi-government, increases the risk of moral hazard,” said analysts at Kotak Securities.
According to them, the lower product profitability due to higher delinquencies can lead to higher interest rates or reduction in credit availability.
The waiver triggered heavy selling in bank stocks dragging the BSE Bankex by over 1 per cent in the intra-day trade. The shares of Bank of Baroda fell 3.08 per cent. PNB and SBI saw a drop of 2.56 per cent and 1.20 per cent in their shares respectively.