Why Banking Stocks Have Crashed? Should You Buy Now?

Banking stocks have come crashing down and have eroded at least 15 to 20 per cent of their value since the beginning of the month.

In fact, stocks like State Bank of India has seen a very sharp decline.

Most banking stocks have lost 10 to 20 per cent in the last three weeks. There are a number of reasons for banking stocks have crashed. Take a look at some of these:

SC hearing on loan moratorium on Sept 28

The Supreme Court had earlier extended the loan moratorium period till September 28, granting relief to borrowers, by extending the interim order asking banks not to declare as NPAs accounts to borrowers that are unable to make repayments.

"Accounts not declared NPA as on August 31 shall not be declared NPA till further orders," the Supreme Court had declared.

The next hearing for interest being charged by banks on instalments deferred during the moratorium period due to the Covid-19 pandemic is on Sept 28. Investors have remained jittery on account of the same, ahead of the decision by the Supreme Court.

Moving of illicit funds

There were reports that several prominent banks from across the globe had moved illicit funds over the last few decades. This saw banking stocks taking a hit across the globe including India. Until adverse sentiments die down, one might continue to see pressure in banking stocks.

Should you buy banking stocks?

The next few quarters for the banking sector as a whole are likely to be challenging. Things have not improved any bit on the economic front and as such we might not see any great improvement in the asset quality of banks. At the moment there is unlikely to be any great news from banks. Many banks are raising resources to shore-up capital.

If one is able to hold onto banking stocks for 3-5 years, it would make sense, as things could change over the long-term. However, in the very short term, things are unlikely to change too soon. For investors who have a long term perspective of 3-5 years it would make sense to buy on dips. Waiting on the sidelines for the right price may not be a bad idea.