Banking stocks soar as LS clears way for easier recovery of debt

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SummaryStocks of public sector banks rallied on Monday after the Lok Sabha approved an amendment Bill that would ease bad loan recovery by banks.

Stocks of public sector banks rallied on Monday after the Lok Sabha approved an amendment Bill that would ease bad loan recovery by banks. An additional thrust also came on expectations that the banking amendment Bill — a precursor to the new banking licences — would be tabled in Parliament.

Shares of smaller PSBs like State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner rallied 14-18 %. Even medium-to-large PSBs rallied 2-5%. Punjab National Bank rose 2.3% to R839.7.

Bank of Baroda and Bank of India rose 3.8% and 4.1% to R828.15 and R305, respectively.

Likely candidates of banking licences — Reliance Capital, L&T Finance Holdings and M&M Financial Services — gained 2.8%, 2.7% and 5%, in that order.

The government cleared the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011, by voice vote in the Lower House, even as Opposition parties, including BJP and CPM, staged a walk-out after the Congress rejected their demand to refer the Bill to a standing committee.

The Bill seeks to convert any part of debt into shares of the defaulting company by the asset reconstruction company.

“The rally in the banking stock was based on expectations that recovery of bad loans would become easier after the clearance of the amendments to the Sarfaesi Act, even as it is not a game-changer for the industry as such,” said an analyst.

According to traders, banking stocks also got an additional push on expectations that more sector reforms would follow as Parliament considers the banking amendment Bill in the winter session.

Parliament will also mull lifting the cap on voting rights in private and public sector banks as well as increase the RBI's legislation powers in the sector.

The proposed corrections, if approved, would increase the voting rights for promoters in the private sector banks to 26% from current 1% and to 10% from the current 1% in the PSBs.

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