MUMBAI: ICICI Bank rose up to 7% on Monday , its biggest singleday gain in seven months, driven by expectations that the Essar Group would use the proceeds from the sale of its oil business to repay banks. With the debt-laden group moving to pay off loans, fund managers said other indebted groups could also be forced to follow suit, which could lead to the investor rerating of shares of lenders with sizeable industrial exposure.
ICICI Bank, which closed at ₹ 258.55, was the biggest gainer among banks on Monday. Essar's decision to sell Essar Oil to Russia's Rosneft for $12.9 billion (approxi mately ₹ 86,500 crore) had limited impact on its other lenders SBI and Axis Bank. SBI shares rose 0.5%, while Axis Bank fell 0.4%.
Fund managers and analysts said the deal is a positive for the shares of Indian banks, whose profits and lending capabilities have been affected by the non-performing loans of various industrial groups. “It looks like the worst is over for these corporate banks," said Mahesh Patil, CIO, Birla Sun Life AMC. “With pressure coming in from various counters, stressed corporates are being forced to de leverage through asset sale. With stability coming in commodity prices, there are more buyers in the market for good assets. However, where there are no underlying assets, banks need to figure out other ways to recover bad loans.“
Concerns over high bad loans resulted in shares of banks with predominant industrial exposure to underperform those with a bigger retail loan book. Now, with such worries easing after the EssarRosneft deal, analysts are recommending some of these stocks. “Banks look to be on the verge of a turnaround because the economy is showing signs of pickup and money is beginning to flow in," said Dharmesh Kant, head of retail research, Motilal Oswal Securities.Kant is positive on SBI and Bank of Baroda among public sector banks and HDFC, IndusInd and Axis Bank among the private players.He recommends waiting a bit before buying ICICI Bank shares.
Some fund managers advise sticking to private sector banks.“The bad loan problem seems to be bottoming out. Banks are being proactive and are working to address the issue through asset sales,“ said Rajeev Thakkar, director, PPFAS Mutual Fund .“However, some banks have such large issues that asset sales alone will not solve their problems. It is better to stick to certain known names and those in the private sector as of now."
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