From IndusInd to ICICI Bank to SBI — banks were among the worst-hit despite the government pause on new bad loans
- All the Indian banks on the Bombay Stock Exchange (BSE) were trading in the red today.
- Private sector IndusInd Bank was the worst hit with its share price plummeting by nearly 10%.
- For shareholders, it might be a good time to pick up stocks like HDFC Bank, ICICI Bank and Kotak Mahindra Bank hit new lows this month.
The state’s crown jewel — the State Bank of India (SBI) — and India’s largest lender wasn’t spared either, down over 6%. But it was only one of the three public-sector banks in the top ten losers in Bank Nifty. All others were private banks including crowd-pleasers like HDFC Bank and Kotak Mahindra Bank, which lost more than 4%.
|Bank||Share value loss|
|Bank of Baroda||7.21%|
|State Bank of India (SBI)||6.67%|
|Kotak Mahindra Bank||4.49%|
Yesterday, Finance Minister Nirmala Sitharaman announced that no fresh insolvency cases would be filed under the Insolvency and Bankruptcy Code (IBC) for at least the next one year. While one may assume that this would make the banks’ balance sheets look greener — it will also strap their liquidity.
“If IBC proceedings are suspended even for already existing defaults, we will end up losing a very powerful tool to resolve insolvencies in cases of pre-existing stress. In such companies, the stress will only keep mounting, and after too one year it may be too late to get any meaningful resolution,” said Pooja Mahajan, Managing Partner and Head, Insolvency & Restructuring at Chandhiok & Mahajan.
“A more nuanced approach will help companies in dealing with COVID-19 disruptions. On the other hand, any blanket suspensions will not only lead to misuse by delinquent corporates but also deprive debtors and creditors from using IBC as a meaningful tool for resolution," she added.
It also means that the Indian Banks Association (IBA) proposal to set up a ‘bad bank’ is likely dead in the water since loans won’t be allowed to ‘default’ — an issue that the government has not addressed during the pandemic so far.
Global investment bank Goldman Sachs said that most of the reforms announced by the Indian government will have an impact in the medium term while the short term may see a "deeper recession", and added that the country's real GDP growth may fall 5% in the current financial year ending March 2020.
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