The Indian stock market – the Nifty and Sensex – have hit fresh record high this Friday morning largely led by banking stocks.
Bank Nifty in the morning session added half a percent led by Axis Bank, State Bank of India, HDFC Bank, ICICI Bank and Kotak Mahindra Bank among others.
The Union Cabinet approved a government guarantee of up to Rs 30,600 crore for security receipts (SRs) issued by the National Asset Reconstruction Company Ltd (NARCL) on September 16. The government wants to transfer around Rs 2 lakh crore non-performing assets (NPAs) to the new bad bank, of which Rs 90,000 crore will be transferred in the first phase.
According to the details shared by the finance minister at the presser, banks will get 15 percent cash payments of the value of assets being transferred upfront (not the Rs 2 lakh crore) and 85 percent will be given as security receipts (SRs).
The Union Cabinet’s decision to approve a government guarantee of up to Rs 30,600 crore for security receipts to be issued by National Asset Reconstruction Company Ltd (NARCL) is a welcome step as this would reduce the burden of unwanted assets on banks and improve their balance sheets, say market experts.
“This is a welcome decision for banks as this would help in losing off its baggage unwanted assets and can function more efficiently,” said Gaurav Garg, Head of Research at CapitalVia Global Research.
Share price of PSU banking major hit record high of Rs 471.85 per share on BSE while that of Indian Bank, Central Bank of India, Union Bank of India and Bank of India also edged higher.
According to global research firm Credit Suisse, the NPAs being transferred in the first phase are mostly already fully provided assets. The Rs 2,400 crore cash recovery translates only to 2-15% of FY21 PBT. Eventual recovery, including SRs, equates to 2-7% of networth and 1-5% of M-cap for PSBs, it said, according to a CNBC-TV18 report.
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“Floor rate of recovery at an average of over 18% is medium-term positive. We continue to like SBI amongst PSBs and prefer large private banks including Axis Bank, ICICI Bank and HDFC Bank,” it added.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
