Question - Answer Session

I have received numerous responses, from the Free Blog Readers, Facebook Groups and

from my Twitter Followers as to why the shares of Canara Bank Ltd (Rs.191.90) and RBL Bank Ltd (Rs.111.70) falling inspite of having excellent fundamentals?

My Take:

There is no 2nd opinion that these two banks from the PSB and the Private Sector Banking space have superb fundamentals, with a steady growth trajectory. Both these banks are well managed with good CAR.

However, the market might be feeling that the banks might not be able to hold on to the NIMs (Net Interest Margin) due to RBI's hike in Repo rates by 40 bps.

The Paradox: Though there could be a dip in credit offtake due to the inflation factor, however, too much speculative fear on this front is uncalled for, because, credit offtake is dependent on PLR and GDP growth and NOT on the Repo rate. If the banks continue with the old PLR, then what? The credit offtake continues at the earlier pace, right?

2ndly, the loss in credit offtake might get balanced by high interest rates in PLR (if any in Future). 

Moreover, the RBI governor has not indicated a steep rise of Repo/Reverse repo rates in the near future. 

Regarding the hike in the CRR -- yes it might have an effect on the overall scheme of things. But then there is the option of Call Money, to mitigate the situation (provided the rates don't shoot up to some gigantic levels).

Fortunately, most banks even after the massive repo hike of 40 bps by the RBI has not gone in, for a significant rise in PLRs. This is music 🎵🎶 to the shareholders.

In such a situation the banking sector will continue to look robust in view of the current GDP growth projections, both by the RBI and World Bank.

Bottomline: Stay invested in both the Blue 🔵 chip Bank stocks with occasional SIPs in dips.