Brokerages In ‘Wait And Watch’ Mode On Bad Loan Resolution Policy

Brokerages adopted a wait-and-watch policy after the cabinet approved a new bad loan resolution plan, but refused to divulge details.

The proposal to deal with the problem of stressed assets plaguing the banking system has been sent to President Pranab Mukherjee, and the details will be made public after the President gives his assent, Finance Minister Arun Jaitley told reporters at a press conference on Wednesday evening.

The Cabinet approved amendments to the Banking Regulation Act, 1949, according to a senior government official. Reserve Bank of India may be further empowered to take action against defaulting companies, a another official in the Ministry of Finance added.

In March this year, the government had said it was considering setting up an overseeing committee to vet large bad loan restructuring deals.

Devil In The Detail

Brokerage firm Nomura said the recent turn of events indicate that the government is ‘steering clear' of the proposal to create a ‘bad bank.'

JPMorgan said the firm has been "worried" about the slow pace of resolutions of bad assets and that stocks like Axis Bank Ltd., ICICI Bank Ltd., State Bank of India and Bank of Baroda will be impacted through this decision.

The NSE Nifty Bank index gained as much as 1.45 percent to touch a new record high of 22,631 as of 11:40 a.m.