Mutual funds reduce their stakes in Indian banks in the June quarter, following a robust gain

According to BSE shareholding pattern data, mutual funds reduced their holdings in Indian banks, including state-run lenders, during the June quarter compared to the previous quarter, following a robust surge in the previous year. This is the first time in four quarters that mutual funds have reduced their holdings in banks.

Mutual funds reduce their stakes in nine of the 12 listed PSU banks. Mutual funds also reduced their holdings in the 12 private banks.

What do the figures indicate?

State Bank of India, Bank of Baroda, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab & Sind Bank, UCO Bank, and Union Bank of India are among the PSU banks that suffered a drop in mutual funds from the previous quarter.

Mutual fund holdings increased in Bank of Maharashtra, Bank of India, and Canara Bank.

For the fourth consecutive quarter, both State Bank of India and Bank of Baroda have seen a constant fall in mutual fund holdings, with reductions of 100 basis points (bps) and 200 bps, respectively.

Mutual funds reduced their stakes in RBL Bank, Axis Bank, Kotak Mahindra Bank, City Union Bank, Karur Vysya Bank, Federal Bank, DCB Bank, Bandhan Bank, HDFC Bank, Indusind Bank, and ICICI Bank during the quarter.

Also, mutual funds reduced their holdings in non-banking financing firms (NBFCs) L&T financing Holdings, Manappuram Finance, Cholamandalam Investment and Finance, and Bajaj Finance.

Share prices are rising

Since April 2022, the Nifty PSU Bank Index has increased more than 154 percent, while it has up 7.4% this year. The spike was caused by public sector banks' continued strong profitability and the improvement of non-performing assets with decreased provisioning. The boost in credit growth among government-owned banks also aided in improving investor mindset.

In FY23, public sector banks reported a net profit of Rs 1.05 lakh crore, with SBI and others posting their highest-ever earnings. Gross and net bad loans decreased for all PSBs, both as a percentage of loans and in absolute terms.

For private sector banks, Bandhan Bank and City Union Bank gave negative returns while Kotak Mahindra Bank gained just 5 percent and HDFC Bank gained 9 percent, since April 2022. IDFC First Bank is the biggest gainer surging over 100 percent followed by RBL Bank which jumped 71% and IndusInd Bank, which jumped 45 percent. ICICI Bank advanced 35% while Axis Bank rose 22% during the period.

Developments in FII

Foreign institutional investors reduced their stakes in state-run banks, except SBI, Bank of Baroda, Bank of Maharashtra, and Punjab National Bank, from the previous quarter. FIIs increased their holdings in private banks and NBFCs throughout the quarter compared to the March 2023 quarter.

Meanwhile, both FIIs and mutual funds have been observed buying shares in mid-sized NBFC companies like Indiabulls Housing Finance Ltd, Shriram Finance Ltd, PNB Housing Finance Ltd, Can Fin Homes, Max Financial Services Ltd, and Aditya Birla Capital.

Earnings

So far in the June quarter, 26 banks have reported earnings, with 12 reporting lower net profits from a quarter before, and one reporting a net loss, Dhanlaxmi Bank. All banks' net interest income increased marginally from quarter to quarter. Operating profit fell for 13 banks, while 10 reported single-digit growth. Operating profit increased by double digits for the remaining three banks: Dhanlaxmi Bank, IDBI Bank, and Jammu & Kashmir Bank.

Meanwhile, 16 banks reported a reduction in provisions QoQ while the other 10 reported a surge, which includes South Indian Bank (a jump of 400% QoQ), Axis Bank (up 238% QoQ), Kotak Mahindra Bank (up 146% QoQ), UCO Bank (up 89% QoQ), among others. About 19 banks reported a decrease in non-performing assets from the previous quarter.

Source: Media Reports