Exposure to Microfinance Sector Threatens Banks’ Stocks,in India

MICROCAPITAL BRIEF:
Exposure to Microfinance Sector Threatens Banks' Stocks
in India

by MicroCapital on Friday, November 26, 2010 at 1:03pm

Recent analyses by Citigroup, a US-based international financial services conglomerate, indicate that banks in India are experiencing stress on their stock prices due to the falling asset quality of their microfinance institution (MFI) holdings, mainly due to the recent trouble in microfinance in the state of Andhra Pradesh.

Citigroup reports 0.5 percent of all loans in the Indian banking industry are exposed to the microfinance sector. 3.6 percent of YES Bank's total loans are in the microfinance sector, and both ICICI Bank and Axis Bank have exposure of 1.2 percent.

Citigroup estimates that banks' profit could drop anywhere from 10 to 50 percent depending on their exposure to the microfinance sector. In YES Bank's case, pre-tax profit could drop by 25 percent for the year and book value could ebb 4.2 percent. Shares of the bank have already fallen a total of 10 percent in three recent trading sessions. Other Indian banks have suffered similar decreases in share price [1].

By John Howard-Smith, Research Associate

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