Banking stocks happy with recapitalisation of Rs 10,000 crore in Budget 2017

In his Union Budget 2017 speech, Finance Minister Arun Jaitely said, “The focus of resolution of stressed legacy accounts of banks continues.”

He added, “Legal framework has been strengthened to facilitate the resolution through enactment of Insolvency and Bankruptcy Code, and also through amendment in the SARFAESI Act.”

In line with the Indradhanush roadmap, the cabinet has decided to provide Rs 10,000 crore for recapitalisation of banks. Additional allocations will be made if needed further.

After the anouncement, Nifty Bank index surged over 380.75 points or 1.95% on NSE, trading at 19,895.90.

Except Kotak Mahindra Bank which was trading at Rs 768.15 per share down 0.78%, remaining all stocks were gainers on the index.

Top gainers were – ICICI Bank at Rs 281 per share (4.48%), followed by Federal Bank at Rs 79.40 per share (4.40%), Bank of Baroda at Rs 171.65 per share (3.94%), Punjab National Bank at Rs 139.85 per share (3.17%) and State Bank of India at Rs 268.40 per share (3.09%).

As per the Economic Survey 2016-17, gross NPAs climbed to almost 12% of gross advances for public sector banks at end-September 2016.

For dealing with bank so-called non-performing assets, Jaitley said, “Listing and trading of security receipts issued by securitization companies and reconstruction companies under the SARFAESI Act will be permitted in the Sebi registered stock exchanges.”

This move is expected to enhance capital flows into securitisation industry and will particularly be helpful to deal with banks NPAs.

During the last budget, the cabinet had infused capital of up to Rs 25000 crore in Indian banks to tackle bad loans problem.

However, many analysts believe that bank would need more recapitalization from the government to overcome from stressed assets.