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Banking stocks rally as Modi cabinet close to announcing NPA package

LiveMint logoLiveMint 04-05-2017 Ravindra N. Sonavane

Mumbai: Banking stocks rallied on Thursday led by an 8% jump in ICICI Bank Ltd shares, its biggest gain in 14 months, after the government cleared a proposal to resolve the Rs9.64 trillion stressed assets in Indian banking. The package is likely to provide more powers to the Reserve Bank of India (RBI) to directly involve itself with bad asset resolution.

An ordinance to amend the Banking Regulation Act has been sent to the President and details may be announced as early as Thursday, finance ministry officials told reporters.

BSE Bankex gained 1.6%, Nifty Bank Index rose 1% and the Nifty PSU Bank rose 2.2% in morning trade. Other banks such as Indian Overseas Bank rose 4.3%, Uco Bank gained 4.2% and Dena Bank jumped 3.1%.

For ICICI Bank, the gains came despite the huge spike in slippages. The bank reported that during the quarter, Rs11,289 crore of fresh loans turned bad, compared with an average Rs7,000 crore in the previous two quarters. The jump was primarily due to one cement account of Rs5,378 crore.

“Overall pool of stressed loans is showing signs of stability, and bulk of NPA (non-performing assets) recognition is happening from watch list. Further expected measures by Government of India and Reserve Bank of India for resolution of lumpy stressed loans provide comfort. Strong capitalization (tier I of 14.4%), significant improvement in granularity of book and sustained improvement in liability profile (helping to de-risk business) are the key positives,” said Motilal Oswal in a report.

ICICI Bank reported a net profit of Rs2,024.6 crore in the March quarter, up from Rs701.9 crore in the year-ago period.

“In summary, hope is of an improving FY18, but challenges remain on multiple fronts. Connecting all the dots, FY18 appears to be a year of improving trends for ICICI Bank. However, the challenges on multiple fronts, including on growth, competition, margins and credit quality, are far from over,” said Jefferies India in a note to its clients

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