Shares of public sector banks gained upto 8.5 per cent on Tuesday after the Reserve Bank of India in a bid to manage bad loans relaxed rules on restructuring large stressed assets.
Punjab National Bank closed 8.43 per cent up at Rs 90 on NSE, followed by IDBI Bank (up 5.04 per cent), Oriental Bank (up 4.37 per cent), Bank of India (up 4.01 per cent) and Andhra Bank (up 3.20 per cent).
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Other PSU banks such as State Bank of India, Allahabad Bank, Union Bank, Canara Bank and Syndicate Bank advanced 3.17 per cent, 3.17 per cent, 2.70 per cent, 2.52 per cent and 2.35 per cent, respectively.
The Nifty PSU Bank index settled 3.16 per cent up at 2,557.05.
The central bank of Monday came out with a scheme for resolution of bad loans of large projects wherein a portion of the debt will be converted into equity or other instruments under supervision of IBA’s Overseeing Committee.
The Scheme for Sustainable Structuring of Stressed Assets will cover those projects which have started commercial operations and have outstanding loan of over Rs 500 crore.
According to Emkay Global Financial Services, the latest restructuring scheme is yet another attempt to provide additional tool to corporate lenders to address the continuing NPA problem. While the intent of the RBI is to limit NPA creation from pro-cyclical tightening in credit conditions, the success of the scheme will crucially depend on the ability of banks to segregate stressed loans into sustainable and unsustainable loans and also the willingness of banks to absorb hair-cuts on the unsustainable portion of loans
(With agency inputs)