BFSI stocks shine amid proposals to reduce bad debt strain and improve capital flow

BFSI stocks shine amid proposals to reduce bad debt strain and improve capital flow

ET INTELLIGENCE GROUP: It was the day of stocks across the banking, financial services, and insurance (BFSI) sector amid the budget proposals to reduce the strain of bad assets, to bring in more foreign capital to insurance companies and to recapitalise the public sector banks (PSBs).

During the budget speech, the finance minister proposed to set up an asset reconstruction company and an asset management company to consolidate and take over the existing stressed debt of public sector undertakings and then manage and dispose of the assets to alternate investment funds and other potential investors. The proposal catapulted the banking stocks at large. The bank Nifty index gained nearly 8% in the afternoon trade. With over 13% return in a single day,

was the biggest gainer in the index.

The finance minister also proposed a recapitalisation of Rs 20,000 crore for PSBs for FY22. The government has infused over Rs 3.5 lakh crore in PSBs over the past few years including Rs 70,000 crore in FY20. The measure helped PSB stocks during Monday’s trading.

gained 10% while rose 8% from Friday’s close.

The proposal to increase the limit of the foreign direct investment (FDI) in insurance companies to 74% from 49% augurs well for the insurance sector which requires large amounts of capital to expand business. A higher FDI limit is expected to play as a catalyst in the next growth phase of the sector. The proposal coincides with the government’s aim to complete the IPO of LIC, the country’s largest life insurance company, in FY22. The stocks of life and general insurance companies rose by 1-3% after the announcement of the proposal.

In addition, credit demand is expected to remain high for FY22 given the government’s intent to fund expenditure on infrastructure, public health and agriculture through market borrowings instead of direct taxes. This augurs well for the growth of the country’s lending sector.

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