Nifty PSU Banks fall 3% after govt notifies NPA ordinance

Nifty PSU Bank index pared gains to fall as much as 3.1% to 3,696 in the afternoon session after the index rose to its two-year high of 3,921 in morning deals as President Pranab Mukherjee signed NPA ordinance to amend the Banking Regulations Act to give more power to the Reserve Bank of India (RBI) to intervene on behalf of banks.
 
At 2:00 pm, Nifty PSU Bank index, the biggest laggard among sectoral indices, was down 1.8% at 3,748. On comparison, Nifty Private Bank index was up 0.44%, and Nifty Bank was trading 0.5% lower.
 
All PSU banks except Canara Bank was trading in red after the formal announcement came through.  State Bank of India (SBI), Bank of Baroda (BoB), Bank of India (BOI), Oriental Bank of Commerce, Canara Bank, Indian Bank, Punjab National Bank and Union Bank of India came down from their 52-week highs to trade 1-4% lower.

 

The new NPA framework will allow state-owned banks to conduct open auction of NPAs, wherein cash-rich public sector companies will be encouraged to buy such assets in their sector. The framework, which will deal with Rs 6 lakh crore worth of toxic assets, was approved by the Cabinet on Wednesday.
 
The framework also recommends setting up RBI oversight committees to monitor progress on the top 35-40 NPAs of all banks. These constitute 60 per cent of all NPAs by value. The committees may be allowed to oversee joint lenders' forums (JLFs) dealing with individual cases.
 
On Nifty Bank index, Bank of Baroda she the most, 3.5% followed by Axis Bank, Punjab National Bank, IDFC Bank and SBI. Federal Bank, Canara Bank, ICICI Bank and Kotak Mahindra bank bucked the trend and were trading in green in the afternoon deals.