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Sensex & Nifty Extend Gains; SBI Up 3.6% on Interest Rate Cut
Mon, 31 Jul 01:30 pm

After opening the day on a positive note, the share markets in India continued to witness buying interest. Barring healthcare stocks and FMCG stocks, all sectoral indices are trading in green, with stocks in the metal sector & capital goods sector leading the gains.

The BSE Sensex is trading higher by 150 points (up 0.5%) while the NSE Nifty is trading higher by 40 points (up 0.4%). The BSE Mid Cap index and BSE Small Cap index are trading up by 0.2% & 0.1% respectively. Gold prices, per 10 grams, are trading at Rs 28,529 levels. Silver price, per kilogram is trading at Rs 38,450 levels. Crude oil is trading at Rs 3,209 per barrel. The rupee is trading at 64.15 to the US$.

Bank stocks are trading on a mixed note with Bank of Baroda and State Bank of India leading the gains. SBI share price surged 3.6% after the bank decided to introduce a two-tier savings rate with effect from 31 July 2017.

While balance above Rs 10 million will continue to attract interest of 4% per annum, accounts with balance below Rs 10 million will have an interest rate of 3.5% per annum. The move comes on the back of decline in the rate of inflation and high real interest rates.

The revision in savings bank rate would enable the bank to maintain MCLR or key lending rate at the existing rates, benefitting a large segment of retail borrowers in SME, agriculture, and affordable housing segments.

Moreover, other banks are also expected to follow SBI's move and could cut the interest rate on savings bank deposits. The overall impact of this rate cut on stimulating credit growth remains to be seen. However, one important aspect that is over looked by everyone is the impact of chasing growth on the bank's bottom-line.

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An aggressive cut on the lending rates while keeping the deposit rates relatively higher would impact banks profit margins. The present drive though seems firmly towards boosting credit growth and bringing more business to the banks.

In another development, Max Financial Services called off its proposed merger with HDFC Standard Life Insurance Co Ltd. The inordinate time associated with finalisation and approval of several alternate structures by the prospective partners led to the decision.

As per the original plan, Max India was supposed to amalgamate Max Life Insurance with Max Financial Services. Subsequently, the insurance business of the merged entity was to be demerged so that it could be transferred to HDFC Standard Life Insurance Company.

However, the whole scheme did not go down well with the Insurance Regulatory and Development Authority of India (Irdai) as it was in contravention of the Section 35 of the Insurance Act, 1938, that does not allow merger of an insurance business with a non-insurance firm.

The decision to not extend the deadline for negotiations came just days after HDFC Ltd. decided to go ahead with an initial public offer for its life insurance unit.

On 17 July, HDFC Standard Life Insurance Co. Ltd's board approved a proposal to sell as much as 20% of the insurer through an initial public offering (IPO).

The insurance sector in India is set to grow leaps and bounds. It is only a matter of time that this sector will witness a flurry of M&A activities which will require the regulator to act swiftly and proactively as far as matters such as approval are concerned.

Our big-picture editor, Vivek Kaul, recently penned a pertinent report on entire insurance industry. We strongly recommend you go through the full report on what's really happening in the insurance industry in India and how it affects you.

If you do not have access to Vivek Kaul's Letter yet, you can sign up here.

By the way, we have also prepared a guide to help you understand the valuation of insurance businesses.

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