Banking stocks surge up to 8% as RBI move soothes banks on bad loans

Banking stocks such as ICICI Bank, PNB, Bank of Baroda and SBI shot up to 8 per cent on news report that Reserve Bank of India (RBI) has trimmed list of companies whose loans need to be provided for against the risk of default.

Reacting to this crumb of news, BSE Bankex rallied as much as 2.79 per cent to 19107.39 points with ICICI Bank contributing the most (8.18 per cent) to the index.

The move is expected to positively impact March quarter results of the public and private sector banks.

A report in the Economic Times newspaper said, "RBI told banks individually that they don't have to provide in the March quarter for outstanding loans to 20 firms, including Jaiprakash Associates and Coastal Energen, out of the 150 it had listed in December."

"The decision was prompted partly by the steps taken by companies to cut debt," added the report.

Banking sector, particularly the public sector banks, has seen a sharp rise in their non-performing assets in the last three years.

In a drive to clean up banks' balance sheets, RBI governor Raghuram Rajan had ordered banks to set aside funds for some of the assets that the lenders were still treating as standard loans. As per the RBI advice, the existing non-performing assets (NPAs) should be fully written off by the March quarter.