Indian markets saw a significant jump on Monday after the Finance Minister Nirmala Sitharaman unveiled her Budget for the next financial year. Sensex jumped 2,314 points while the broader Nifty galloped 4.74%.
This was aided mainly by the banking stocks where IndusInd Bank zoomed 15%, ICICI Bank soared 13%, and State Bank of India jumped 11%.
The rally was backed by Nirmala Sitharaman's announcement about setting up of an Asset Reconstruction Company and further introducing a plan to recapitalise public sector banks. Along with these steps, the government has also announced the intention to privatise two state-run lenders.
Among the sectoral indices, Nifty Bank was the best performed surging 8.26% on Monday, followed by Nifty Private Bank index, up 8.06%, and then Nifty PSU Bank, up 7.83%.
Bank Nifty has managed to outperform the benchmarks for the last few trading sessions and the Budget announcements aided that.
The recapitalisation of fresh capital and the asset management company for bad loans is expected to boost the balance sheet of state-owned banks, which are expected to nurse high levels of bad loans related to Covid-19 pandemic once the Supreme Court lifts its standstill of bad loan recognition.
The Reserve Bank of India’s Governor Shaktikatna Das has repeatedly called for the government to recapitalise banks as he feels that the worst of the pandemic’s impact on banks’ balance sheet is yet to happen.
The Central bank’s stress test results showed that the state-owned banks could see their gross non-performing assets ratio deteriorate to 16.2 per cent in the baseline scenario and 17.6 per cent in the worst case scenario. At the end of September, gross NPAs at state-owned banks was at 9.7 per cent.