State-Owned Bank Stocks Slump After RBI Gets More Teeth To Tackle Bad Loans
The government via an ordinance has given RBI powers to direct banks to to curtail bad loans.
The Public Sector Bank Index fell nearly 5 percent from its day’s high after the government gave the Reserve Bank of India sweeping powers to take decisions on the resolution of individual bad loan cases.
The ordinance to amend the Banking Regulation Act empowers the central bank the power “to issue directions in specific cases” to curtail bad loans. It was cleared by the Union Cabinet on Wednesday and approved by President Pranab Mukherjee on Friday morning.
"There is no surprise or substantial change in today’s announcement,” Rakesh Kumar of Elara Securities told BloombergQuint over the phone. “The larger concern remains that even after making an account insolvent: where is the buyer to buy that account?”
Rajiv Mehta, banking analyst at brokerage house IIFL Ltd. sees the correction in banking stocks after their recent run up as healthy.
Directionally, any step taken towards expediting resolutions or giving more power to RBI or banks to take action against wilfully defaulting promoters then it is healthy from a cultural perspective.Rajiv Mehta, Banking Analyst, IIFL
