Karnataka Leads Bank Gains on Foreign Buyer Rules: Mumbai Mover

Karnataka Bank Ltd. and Lakshmi Vilas Bank Ltd. led mid-sized lenders higher in Mumbai trading after central bank Governor Raghuram Rajan was cited as saying foreign lenders may be allowed to buy Indian peers.

Karnataka Bank jumped 15 percent to 107.15 rupees at 12:02 p.m., set for the biggest one-day gain since July 2005. Lakshmi Vilas gained 16 percent to 75.25 rupees and South Indian Bank rose 9.1 percent to 21.5 rupees.

Planned new rules for units of foreign lenders are part of a drive by Rajan, who took office last month, to strengthen India’s financial industry. Other measures include making it easier for banks to curb soured loans and lend to non-state sectors. The S&P Bankex Index has lost 15 percent this year on rising bad debt and falling profit as the economy slows.

“Small and mid-sized banks will gain further as the change in rules by the RBI makes them acquisition targets,” Nitin Kumar, a Mumbai-based banking analyst at Quant Broking Ltd., said by phone. “With foreign banks forming local units and the central bank giving new banking permits there will be a big enough number of buyers.”

The central bank will publish within weeks the rules for foreign banks to set up local subsidiaries, which might be allowed to buy Indian lenders, the Press Trust of India today cited Rajan as saying. The banking regulator is working on issuing new permits, Rajan said Sept. 20.

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