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MUMBAI : Banking stocks on Friday led the gains with the Nifty Bank index hitting a new high of 38,045, after the Centre approved a 30,600-crore guarantee programme for acquiring stressed loan assets, and paving the way for operationalizing the so-called bad bank.

The gains in banking stocks were also in response to the Centre’s announcement of a package for the debt-ridden telecom sector, as the lenders will not have to write off their exposure to Vodafone Idea at least for the near term. “For banks, it will be a temporary relief for a few quarters, unless Vodafone finds a new owner with deep pockets and/or raises tariffs so that its Arpu (average revenue per user) starts rising fast. Otherwise, it may not be able to service the moratorium payments/capex to remain competitive in terms of service/5G auction payments," said Deepak Jasani, head of retail research, HDFC Securities.

However, at the end of the day’s trading banking stocks erased most of the gains on profit booking. In morning trade, the Bank Nifty hit an all-time high of 38,112.75, up 1.2%. At closing, it was 0.38% higher. Kotak Mahindra Bank, HDFC Bank Ltd and Axis Bank were up 1-5% at the end of the day’s trade, while Bank of Baroda, Indian Overseas Bank, UCO Bank, Canara Bank, Union Bank of India, PNB, Bandhan Bank, IDFC Bank, Federal Bank, State Bank of India and RBL Bank lost 2-4%.

“We view this as a positive development as the focus remains on faster resolution of stressed assets. This will improve the balance sheet of banks, and the upfront cash payment would also aid in providing incremental cash flows. It will enable banks to focus more on their core operations. PSUs (public sector undertakings) and private banks such as ICICI Bank, Axis Bank and Yes Bank are likely to be the key beneficiaries," said Motilal Oswal in a note to investors.

The National Asset Reconstruction Co. Ltd, which was incorporated, will acquire stressed assets worth around 2 trillion from banks in phases. Lenders will transfer non-performing assets worth 90,000 crore in the first tranche and the balance 1.1 trillion in the second tranche. Besides, another entity, India Debt Resolution Co. Ltd, which has also been set up, will sell the stressed assets in the market.

According to news reports, as part of the first tranche, banks will transfer stressed accounts of Videocon’s VOVL Ltd ( 22,532 crore), Reliance Naval and Engineering ( 8,934 crore), Amtek Auto ( 9,014 crore), Jaypee Infratech ( 7,950 crore), Castex Technologies ( 6,337 crore), GTL ( 4,866 core), Visa Steel ( 3,394 crore), Wind World India ( 3,161 crore), Lavasa Corp. ( 1,4.24 crore) and Consolidated Construction Consortium ( 1,353 crore).

In a report, Jefferies India said the aggregation of debt at one entity may speed up the process for finding interested buyers, transfer of assets, formalizing write-downs and reworking terms of new debt. Nevertheless, the quality of asset matters the most.

“We saw this in NCLT cases (40) where good ones in the steel sector got resolved with negligible haircuts for banks, but tough ones in power, auto, consumer are yet to find a resolution. Historically, banks see 10% recovery from written-off loans, and we believe that recoveries here may be broadly in line. While there is a chance that accounting policies allow for upfront recognition of gains, we hope RBI/ banks take a conservative stance," it added.

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