Financial stocks tumble after government suspends IBC for 1 year; SBI, PNB at 2-week low

Banking and financial stocks were under pressure on May 18 after Finance Minister Nirmala Sitharaman on May 17 said debts related to COVID-19 will be excluded from the “default” category under the Insolvency and Bankruptcy Code for a period of up to 1 year.

Sitharaman also said the minimum threshold to initiate insolvency proceedings has been raised to Rs 1 crore from Rs 1 lakh, which will insulate micro, small and medium enterprises (MSMEs).

Experts welcomed the step of excluding the COVID-19 related debt defaults, but they found it of no use when there is already a suspension of IBC proceedings for one year.

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Bank Nifty tumbled 5 percent after top banking stocks traded lower by 4-6 percent. ICICI Bank, Axis Bank and IndusInd Bank were down 6 percent each followed by Bandhan Bank, Bank of Baroda, IDFC First Bank, Kotak Mahindra Bank, Punjab National Bank, RBL Bank and State Bank of India.

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Share price of Bajaj twins, Bajaj Finance and Bajaj Finserv shed 4- 5percent while M&M Financial Services, Shriram Transport Finance, Cholamandalam Investment and HDFC were the other losers.

Dhiraj Relli, MD & CEO at HDFC Securities feels the suspension of IBC proceedings for 1 year though essential in these times, would postpone the pain for banks and NBFcs and they could see large slippages and lower recoveries post the 1 year period.

The most active stocks in terms of value on NSE included ICICI Bank where 2,72,07,355 shares are being traded followed by HDFC Bank (90,47,353 shares), Axis Bank (1,41,77,896 shares), State Bank of India (2,70,90,647 shares) and HDFC where 26,13,801 share are being traded at 10:45 hours.

“Suspending IBC for one year may not be a good idea as there may be unscrupulous borrowers/promoters. Instead, each bank could have have been directed to form a committee which could decide whether to initiate any legal action or not under IBC depending upon the credentials and performance of the borrower as well as putting a reasoned note whether the default is attributable to COVID-19 situation,” Rajesh Narain Gupta, Managing Partner, SNG & Partners told Moneycontrol.

Edelweiss Financial and Cholamandalam Investment are some of the stocks which hit lower circuit on BSE while State Bank of India and Punjab National Bank hit new 52-week low on BSE.