Indian Bank Shares Jump as RBI Reported to Ease Bad-Debt Rulesby
Report says banks don't have to make provisions for 20 firms
RBI's step described as a `breather' for banks by analyst
ICICI Bank Ltd. and Punjab National Bank led Indian bank shares higher following a media report that the central bank eased pressure on lenders to set aside cash for possible defaults.
The S&P BSE India Bankex Index, a gauge of 10 lenders, rose 2.3 percent to the highest since January at 10:44 a.m. local time in Mumbai. ICICI Bank climbed 6 percent and Punjab National gained 6.1 percent. State Bank of India advanced 4 percent.
The Reserve Bank of India told lenders that they don’t have to make provisions for outstanding loans to 20 companies, including Jaiprakash Associates Ltd., out of 150 it had listed in December, the Economic Times newspaper reported Thursday. The decision was prompted partly by the steps taken by the companies to cut debt, the newspaper said, citing unidentified sources.
“The regulator has provided a breather to the banking sector on the asset-quality front and this should give some confidence to investors and the bankers,” Nitin Kumar, a Mumbai-based analyst at Prabhudas Lilladher, said by phone. The reported move “will ease the provisioning and asset-quality pressures that have weighed heavily on the banking sector.”
Alpana Killawala, a spokeswoman for the central bank, didn’t immediately respond to an e-mailed query and a phone call.
Indian banks are about to start reporting earnings for the quarter ended March, with IndusInd Bank Ltd. due to post results on Thursday. Eleven banks in India reported losses in the quarter ended December amid surging bad loans after the RBI began an audit, known as the asset-quality review, on Oct. 1.
Banks with large corporate exposure, such as ICICI, State Bank and Punjab National, will gain from any easing of rules, Kumar said. Lenders such as Bank of Baroda and Axis Bank Ltd., which already made entire provisions in the quarter ended December, may be able to reverse some of those and report strong earnings, he said.