Bank, Infra Stocks Surge As RBI Eases Lending Norms

The Bank Nifty outperformed the broader markets on Wednesday after the Reserve Bank said on Tuesday that long-term bonds raised by banks for infrastructure and affordable housing lending will be exempted from mandatory reserve requirements.

These bonds will be required to have a minimum tenure of seven years and would be exempt from statutory liquidity ratio, cash reserve requirements and priority sector lending targets.

The move will help create new sources of long-term finance and will help remove the disadvantage banks had vis-a-vis housing finance companies (HFCs), who were not required to adhere to these reserve requirements.

IDFC surged over 4 per cent and was the top Nifty gainer, followed by private lender ICICI Bank, which is likely to be a key beneficiary of the new norms. India's biggest realty developer DLF, PSU lender State Bank of India and private lender Axis Bank were also among the top Nifty gainers.

Infra stocks also surged with IVRCL gaining over 4 per cent, Punj Lloyd rising 3 per cent and GMR Infra up 2 per cent. However, HFCs such as HDFC fell over 2 per cent, while LIC Housing Finance slumped 4.5 per cent on concerns that the new norms will increase competition from banks.

Keki Mistry, CEO at HDFC told NDTV that RBI's norms will be a big boost for the infra sector, where rates are very high. The new regulation will also benefit HFCs, he added.

"Banks will have to pay between 9.2-9.5 per cent for 7-year bonds and along with other costs, the rate of interest will be well above 10.25 per cent... Banks will no longer be able to use cheap CASA funds for home loans," said Mr Mistry.

RBI's operational details come after Finance Minister Arun Jaitley unveiled a proposal to exempt bonds for infrastructure lending from reserve requirements last week at the government's first Budget.

As of 09.45 a.m., the Bank Nifty traded 0.95 per cent higher at 15,032 as against a 0.4 per cent gain in the Nifty.

(With inputs from Reuters)