Banks surge on report govt may raise bond investment limit for FPIs to 10%

Banking counters such as IDBI Bank, State Bank of India (SBI), YES Bank, and ICICI Bank, were trading higher on Friday after reports suggested that the government is considering increasing the government bond investment limit of foreign portfolio investors (FPIs) to at least 10 per cent of the outstanding, from 6 per cent now, with an aim to incorporate local bonds into global bond indices.

According to a Business Standard report, the central bank, however, wants the government to go slow and first check how the currency risk is covered from the issuer perspective, before increasing the limits further. Hence, any further increase could take another year or two after the 10 per cent limit is declared, possibly in the Union Budget in February.

"India's plan might include a possible sovereign bond, but the Reserve Bank of India is opposed to it as the central bank doesn't want to face a currency risk. However, inclusion in the index itself becomes quasi-sovereign bonds as any investor can invest and transact in those bonds," it said.

Among private banks, YES Bank surged 5 per cent on the National Stock Exchange (NSE), followed by Axis Bank and RBL Bank (1.7 per cent each), Federal Bank (1.6 per cent), and IndusInd Bank (1.3 per cent). Besides, ICICI Bank, which gained only 0.6 per cent, hit a fresh 52-week high of Rs 538.9 apiece.

Among the public sector banks (PSBs) pack, UCO Bank surged 18.8 per cent on the NSE, Oriental Bank of Commerce gained 8 per cent, and Central Bank of India (5.6 per cent). Shares of Bank of India, Punjab National Bank (PNB), SBI, Canara Bank, and Allahabad Bank advanced up to 4 per cent.

Additionally, sentiment at D-Street was bolstered by the latest amendments approved by the Cabinet Committee of Economic Affairs (CCEA) with respect to the Insolvency and Bankruptcy Code (IBC). These amendments protect successful resolution applicants from criminal proceedings against offences committed by previous managements or promoters. Consequently, banking industry now expects the resolution proceeds from Essar Steel and Ruchi Soya to be received as early as next week.

Morevoer, the Cabinet also lowered the rating threshold for public sector banks to purchase high-rated pooled assets to BBB+ from "financially sound" nonbanking finance companies (NBFCs) and housing finance companies (HFCs) under the partial credit guarantee (PCG) scheme. Lowering the limit from AA will make more NBFCs and HFCs eligible for funds from banks.