Shares of 12 non-banking financial firms fell by 1.61% to 7.1% at 12:04 IST on BSE after the government pledged to inject Rs 2.11 lakh crore in state-run banks.
Meanwhile, the S&P BSE Sensex was up 323.39 points, or 0.99% to 32,930.73.
Cholamandalam Investment and Finance Company (down 7.1%), Edelweiss Financial Services (down 5.94%), Indiabulls Housing Finance (down 4.23%), Bajaj Finserv (down 3.45%), Mahindra & Mahindra Financial Services (down 3.1%), Manappuram Finance (down 2.97%), Bajaj Finserv (down 2.95%), IIFL Holdings (down 2.56%), Shriram Transport Finance Company (down 2.42%), LIC Housing Finance (down 2.4%), Muthoot Capital Services (down 1.88%) and Muthoot Finance (down 1.61%), edged lower.
The government has decided to take a massive step to capitalise public sector banks (PSU banks) in a front-loaded manner, with a view to support credit growth and job creation. This entails mobilization of capital, with maximum allocation in the current year, to the tune of about Rs 211000 crore over the next two years, through budgetary provisions of Rs 18139 crore, recapitalisation bonds to the tune of Rs 135000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs 58000 crore), Ministry of Finance said in a statement after market hours yesterday, 24 October 2017.
Government actions are not limited to addressing capitalisation of PSU banks. Definite steps will be taken alongside capitalisation to enable them to play a major role in the financial system. PSU banks having 70% market share in the banking space will be geared for greater growth and to contribute through enhanced credit off-take. The stage has been set with a 'MUDRA Protsahan' campaign across the country, the statement said.
There will be a strong push on enabling growth of micro- small and medium enterprises (MSMEs) through enhanced access to financing and markets, and a drive to finance MSMEs in 50 clusters. The recapitalisation and the initiatives announced on Tuesday, 24 October 2017, are expected to have a noticeable impact in the near-term, contributing to accelerated economic activity, employment and growth of the economy, it added.
According to media reports, the recapitalisation of PSU banks will lead to a re-rating of state-run lenders. High provisions, subdued loan growth and lower treasury gains were hurting state-owned banks. The new flush of funds is expected to boost PSU banks' growth and encourage lending. Consequently, there could be a shift of market share to PSU banks from non-banking financial companies (NBFCs) and private sector lenders as PSU banks already have a well-established branch and franchise network.
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