Financial firms' clout wanes after coronavirus-triggered market fall

During the start of the year, private banks alone accounted for a fourth of the index weight.

Financial stocks have had a dominant run in the past decade and a half. In 2005, they weren’t even among the top five sectors when it came to their weighting in the Nifty index.

In 2009, private banks’ weighting in the index rose to 12.9 per cent, from just 5.4 per cent in 2005. Since then, it has only gone up. During the start of the year, private banks alone accounted for a fourth of the index weight.

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If one added the weighting of NBFCs and PSBs, the weighting in the index would shot up to 42 per cent. However, the Covid-triggered market fall has hit the financial pack the hardest.

The weighting of the sector has come off from the peak of 42 per cent in December 2019 to less than 33 per cent. Given the underperformance of banking stocks, it could shrink further.

Meanwhile, stocks in the pharma, and consumer goods space have seen their weighting go up in the benchmark indices. On a stock specific basis, Reliance Industries has seen the highest increase in weighting.

Coronavirus outbreak: Consolidation in PSB space now a reality

Each of the amalgamated entities with scale and national reach would have a business of over Rs 8 trillion.

The landscape of the Indian banking will see a change with the consolidation of 10 public sector banks (PSBs) into four, effective April 1. The mega exercise comes at a time when the country and financial system is grappling with adverse fallout of the Covid-19 pandemic.

Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will merge into Punjab National Bank. Mumbai-headquartered Union Bank will absorb Hyderabad-headquartered Andhra Bank and Mengaluru- headquartered Corporation Bank. Bengaluru-headquartered Canara Bank will take Syndicate Bank and Indian Bank will acquire Kolkata-headquartered Allahabad Bank.

Each of the amalgamated entities with scale and national reach would have a business of over Rs 8 trillion.

The consolidation is expected to help create banks with scale comparable to global banks and capable of competing effectively in India and globally. Greater scale and synergy through consolidation would lead to cost benefits, which should enable the PSBs enhance their competitiveness and positively impact the Indian banking system.

The adoption of best practices across amalgamating entities would enable the banks improve their cost efficiency and risk management, and also boost the goal of financial inclusion through a wider reach.

Last year, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with State Bank of India.

Banking, FMCG to gain from tax cut; pharma, IT to remain untouched: Report

Giving a sectoral analysis of the impact of tax cut, ICICI Direct Research said domestic auto equipment makers will tend to benefit from the tax cut.

The government's big announcement of a cut in corporate tax will benefit sectors such as banking and FMGC but IT and pharma may not see any tangible benefits as their current effective tax rate is lower, ICICI Direct Research said in a report.

"Like a bolt from the blue, the government (on Friday) announced a reduction in the corporate tax rate from close to 35 per cent to 25.17 per cent thereby fulfilling its key agenda of implementing the Direct tax Code (DTC). This is a massive trigger for revving up growth and, more importantly, resurrecting sentiments that were down in the dumps," the report said.

The immediate benefit is increased cash flows to corporate India that will be either channelised into debt reduction or incremental investments in increasing capacity.

Also, taxing new production facilities (that come up by 2023) at 15 per cent will enable attraction of global capital and spur a beleaguered investment cycle, it said.

"From a granular perspective, sectors like banking and FMCG are expected to grow at a CAGR of 48.2 per cent and 18 per cent, respectively vs. earlier CAGR of 42.2 per cent and 12.2 per cent. On the flip side, sectors like IT and pharma are not expected to see any upgrades on account of existing lower tax rates," it said.

A new provision has been inserted in the Income-Tax Act with effect from FY20 which allows any domestic company the option to pay income tax at 22 per cent subject to the condition that they will not avail any exemption/incentive.

The effective tax rate for these companies shall be 25.17 per cent inclusive of surcharge and cess. Also, such companies shall not be required to pay Minimum Alternate Tax.

In order to provide a boost to 'Make-in-India' initiative of the government, a new provision allows any new domestic company incorporated on or after October 1, 2019 to make fresh investment in manufacturing, an option to pay income tax at 15 per cent. This benefit is available to companies that do not avail any exemption/incentive and commences their production on or before March 31, 2023.

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SBI buys loans worth Rs 27,000 cr from non-banking financial cos in FY19

Flush with funds, SBI in October 2018 had tripled its target to buy good quality retail asset portfolio from finance companies to Rs 450 billion from earlier target of Rs 150 billion.

State Bank of India has acquired retail loans worth Rs 27,000 crore including Rs 10,000 crore worth of micro-finance loans from non-banking finance entities in 2018-19.

India's largest lender SBI in October 2018 had indicated it would acquire up to Rs 45,000 crore from finance companies that are facing a liquidity crunch after IL&FS group entities defaulted on repayments. This provided much-needed funding support to finance companies.

P K Gupta, managing director (digital and retail banking) said the bank has sanctioned Rs 27,000 crore of loans which were to be bought from finance companies. Of this, work for over Rs 19,500 crore has already has been done. The processing for over Rs 6,000 crore is underway.

These assets comprising mortgage loans and microfinance credit etc have been acquired through the direct assignment route. They would be part of the loans book, unlike securitization where banks invest in the pass through certificates for underlying loans.

SBI got an opportunity to expand its loan book by purchasing good quality portfolio assets at attractive rates.

The yield on loan portfolio ranges between 8.75 per cent to 10.5 per cent depending on the profile of the asset pool and competition, SBI executives said.

The loan purchase was for expanding the book but not at the cost of the growing balance sheet organically through branch network, SBI chairman Rajnish Kumar had said.

The credit to deposit ratio of SBI stood at around 68.67 per cent at end of December 2018. Gross Advances at the Whole Bank level registered a growth of 11.99 per cent from Rs 19.24 trillion as on December 2017 to Rs 21.55 trillion as on December 2018.

Bank deposits increased 6.76 per cent from Rs 26.51 trillion in December 2017 to Rs 28.30 trillion in December 2018.

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