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Indian Indices Continue Momentum; IT Sector Up 1.4%
Mon, 28 Aug 11:30 am

After opening the day higher, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 148 points (up 0.5%) and the NSE Nifty is trading up 48 points (up 0.5%). The BSE Mid Cap index is trading up by 0.9%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 63.90 to the US$.

In the news from the banking sector, the government has notified the Banking Regulation (Amendment) Act. The act allows government to authorise the Reserve Bank of India (RBI) to issue directions to banks to initiate insolvency resolution process to recover bad loans.

One shall note that the government, along with RBI, is taking many steps to tackle the bad loan problem seen at most of the banks in India.

Earlier, last month, the RBI had identified 12 large accounts for resolution under the bankruptcy code.

Also, the RBI Governor Urjit Patel has said that the government and the RBI are working in close coordination to resolve large stressed corporate borrowers and recapitalize PSBs within the fiscal deficit target.

The bad loans at Indian banks have only been rising, as can be seen from the chart below:

Rising Bad Loans at Indian Banks

Gross non-performing assets (GNPA) of Indian banks rose from 9.2% in September 2016 to 9.6% in March 2017. GNPA refers to the total value of loans on which interest and principal income has not been received by the bank for more than ninety days. For some banks, the ratio of GNPAs to total lending is more than 20%. This means more than Rs 20 out of every Rs 100 lent is at the risk of not coming back.

The RBI expects the average GNPA ratio to increase to 10.2% by March 2018. It indicated that if macroeconomic conditions worsen, this number could go up.

The problem of bad loans is indeed quite severe and when we compare it with other global peers it looks daunting.

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Out of the ten major economies facing NPA problems, India is ranked seventh.

The overhang of bad debts has not only hit the bank's profitability, but has also restricted their loan book growth.

However, the ongoing developments by the government and the RBI comes as a significant step in the long overdue process of recovery of loans choking the banking system.

Bad loan recovery is set to gather momentum after years of hesitation with the government empowering RBI to direct banks to take big defaulters through the process prescribed under the Insolvency and Bankruptcy Code (IBC) that specifies timebound resolution.

In the news from commodity markets, crude oil is witnessing selling pressure today. Losses are seen on the back of Hurricane Harvey that wreaked havoc along the US Gulf coast over the weekend and affected oil markets.

As per the news, the Hurricane has knocked out numerous refineries and also some crude production settlements.

Owing to the above development, many crude refineries were left with no choice but to shut down their operations. Hurricane Harvey came ashore over the weekend and has caused large scale flooding and forcing the closure of Huston port as well as many refineries.

As per the US Department of the Interior's Bureau of Safety and Environmental Enforcement, about 25% of US Gulf of Mexico oil production was offline due to the above hurricane.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

In the news from IT sector, Infosys share price is witnessing buying interest today. The stock of the company surged 4% in the opening trades after the return of former CEO Nandan Nilekani as non-executive chairman.

The above development gave the much-needed solace to stakeholders, who saw their morale shaken after the open tussle between the board and the founders last week. First, the sudden exit of MD and CEO Vishal Sikka and then resignations of the entire board, except two members.

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