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Last Updated : Feb 06, 2020 03:50 PM IST | Source: Moneycontrol.com

Banks, financial services stocks rally up to 15% on RBI relief for stressed sectors

Experts see the announcements as RBI's 'mini-budget' and a coordinated effort with the government to revive growth.

 
 
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Shares of banking and financial services companies rallied 1-15 percent in the afternoon on February 6 after the Reserve Bank of India announced several measures to boost credit growth in stressed sectors such as realty, MSMEs and NBFCs.

The Nifty Bank index gained 302.1 points, or 0.97 percent, to 31,304.05 as RBL BankIndusInd BankBank of BarodaSBIPNBYes BankFederal BankAxis Bank, and IDFC First Bank rose 2-4.5 percent.

In the financial services space, Indiabulls Housing Finance shot up 15 percent (also helped by Q3 earnings) followed by Shriram Transport FinanceEdelweiss FinancialM&M FinancialBajaj Finance and HDFC which gained 1-8 percent.

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The Nifty Financial Service Index also climbed 0.96 percent to 14,545.75.

While keeping the repo rate unchanged at 5.15 percent with an accommodative stance, the RBI said extended by a year the date of commencement of commercial operations (DCCO) of project loans for commercial real estate, delayed for reasons beyond the control of promoters, without downgrading the asset classification.

The central bank also said that scheduled commercial banks would be allowed to deduct the equivalent of incremental credit disbursed by them as retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs), over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020, from their net demand and time liabilities (NDTL) for maintenance of cash reserve ratio (CRR).

This exemption will be available for incremental credit extended up to the fortnight ending July 31, 2020, it said.

Considering the importance of MSMEs in the Indian economy and for creating an enabling environment for the sector in its efforts towards formalisation, the RBI permitted a one-time restructuring of loans to MSMEs that were in default but ‘standard’ as on January 1, 2019; without an asset classification downgrade.

Experts see the decisions as a “mini-budget” by RBI and a coordinated approach with the government to revive growth.

"The benefit of CRR to banks for the auto, home and MSME loans is a big positive for the overall market as liquidity was the main concern for economic growth, Amit Gupta, Co-Founder & CEO, TradingBells, told Moneycontrol.

The central bank's decisions to extend by a year the date of commencement of commercial operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, was a big boost to the real estate sector, he said.

“So, we can say that this monetary policy is an extension of the Budget to boost economic growth," Gupta said.

Joseph Thomas, Head of Research-Emkay Wealth Management, also said the RBI crafted a fine balancing act of reconciling the requirements of growth with stability.

In recent policy pronouncements, the RBI very clearly indicated that the requirements of growth should get precedence over stability.

The central bank said talked about taking appropriate steps once the Budget was announced.

"Budget Part II was delivered by RBI in the form of lowering costs to MSMEs and bringing some life into realty, wherein loans to commercial sector will be considered as standard (projects which are just about to complete but are stuck due to last-mile funding gaps),” Jimeet Modi, Founder & CEO, Samco Securities, said.

The RBI, he said, had used all its might to force banks to lower interest rates to induce transmission for the benefit of end users, which it partly achieved.

According to Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares & Stock Brokers, these steps may marginally reduce the interest rates on such fresh loans.

"The removal CRR select loans (around 15 percent of banks' outstanding loan book) is also likely to give a temporary boost to banks' net interest income," he said.

The central bank has continued its efforts to improve transmission of rate cuts and maintain enough liquidity in the market.

"We expect the RBI to continue to act with other monetary tools like open market operations (OMOs) and Operation Twist. The RBI and the government will likely take steps to improve transmission of rates in the economy," Amar Ambani, Senior President and Head of Research – Institutional Equities at YES Securities, said.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Feb 6, 2020 02:45 pm
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