Bank stocks surged in early morning trade on Thursday, led by stellar gains in ICICI Bank shares on the back of strong fiscal fourth-quarter results, and buoyed by the Union Cabinet approving a holistic package to resolve the widespread problem of NPAs among the lenders. Bank Nifty was up 1.20% at 22,575.45, with ICICI Bank soaring as much as about 9% to Rs 297.3 on BSE.
Yesterday, the Union Cabinet cleared a non performing asset (NPA) resolution package, which reportedly includes an ordinance to give increased powers to the Reserve Bank of India (RBI) to deal with NPAs more effectively. The resolution package also proposes to amend the Banking Regulation Act to put in place a scheme to resolve stressed assets in the banking system, which amounted to about Rs 9.64 trillion as of 31 December 2016. The proposal to amend the Act, in the form of an ordinance, has been sent to President Pranab Mukherjee.
“The cabinet has approved a major decision related to the banking sector, which has been sent to the President,” Finance Minister Arun Jaitley said after the meeting of the Cabinet chaired by Prime Minister Narendra Modi on Wednesday evening. Jaitley declined to elaborate on the contents of the plan. “There is a convention that when some proposal is referred to the President then details of it cannot be disclosed till it is approved. As soon as approval comes, details will be shared,” he said.
The ordinance will reportedly allow the Reserve Bank of India (RBI) to deal with bad loans on a case-to-case basis as opposed to following a set of broad guidelines and same rules for all non-performing assets (NPAs).
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On the other hand, India’s largest private sector bank ICICI Bank posted strong fourth quarter results, with its net profit almost tripling to Rs 2,024.64 crore, from Rs 701.89 crore a year ago. However, the asset quality woes, which had dented its bottomline year-ago, continued to persist. The bank said its bad loans rose sharply due to one account in cement sector, ostensibly referring to Jaypee Cement without naming it. Total slippages for the reporting quarter was over Rs 11,000 crore, including a Rs 5,378 crore to a cement company which is bound to be acquired soon, while the bank wrote off a high Rs 5,386 crore of assets as per a laid down policy and recovery and upgrades were at Rs 1,400 crore.
At 11:17 am, ICICI Bank shares were trading 9.07% up at Rs 297.50. BSE Sensex was trading up 166.95 points at 30,061.75.