In his recent YouTube video, Sahil Bhadviya analyzed the reasons behind the ongoing decline in banking stocks, while pointing out that banks like ICICI are still outperforming in this challenging environment. Here are the four main reasons why banking stocks are facing downward pressure, according to Sahil Bhadviya:
1) Decline in Savings Deposits
- As more people shift towards investing in the stock market and other asset classes like real estate or mutual funds, there has been a lowering of savings deposits in banks.
- This has created stiff competition among banks to acquire deposits, as customers are looking for higher returns outside of traditional bank savings accounts.
2) Tightening of Liquidity Standards by RBI (Basil III Norms)
- The Basil III Norms, implemented by the Reserve Bank of India (RBI), have tightened liquidity standards for banks.
- This has placed pressure on the banking system to maintain higher capital reserves, which limits their ability to lend freely and impacts their overall profitability.
3) NIM Pressure (Net Interest Margin)
- Sahil Bhadviya points out that banks are facing NIM pressure, which refers to the declining Net Interest Margins.
- With intense competition for deposits and stricter lending criteria, banks are finding it difficult to maintain profitable margins between the interest they earn on loans and the interest they pay on deposits.
4) Limited Scope for Asset Quality Improvement
- Another issue highlighted is the lack of room for asset quality improvement in the banking sector. With Non-Performing Assets (NPA) already at their lowest levels, banks are unable to further improve their asset quality, leaving limited opportunities for growth.
Despite these challenges, ICICI Bank has managed to outperform, thanks to its strong fundamentals and effective risk management strategies. However, the broader sector is struggling due to the aforementioned factors analyzed by Sahil Bhadviya.
