Bank Stocks Outlook for the week – 19 to 23.06.2017

Bank Stocks Outlook for the week – 19 to 23.06.2017

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Bank Stocks Outlook for the week – 19 to 23.06.2017 )

Investors in bank stocks are seen cautious next week, as the recovery process under the Insolvency and Bankruptcy Code kick-started this week, with the Reserve Bank of India identifying 12 stressed loans for referral under the code. With bad loans and resolution of stressed assets having taken centre stage, the fate of bank stocks now depends on developments under the insolvency process. The key uncertainty in this whole approach is that the code is still in the early stages of evolution," Kotak Institutional Equities said in a report. If a large number of assets are put up for liquidation immediately, only a few may be able to garner fair valuation. Such a move could lead banks to convert debt to equity or sell assets at steep discounts, resulting in higher levels of equity ownership. This is the most significant step taken by the RBI since the government empowered the central bank to tackle the issue of stressed assets, by notifying The Banking Regulation (Amendment) Ordinance, 2017, on May 5. The National Company Law Tribunal has been appointed as the nodal court for insolvency and bankruptcy proceedings in the country. Essar Steel, Bhushan Steel, Bhushan Power and Steel, Alok Industries, Jaypee Infratech, Electrosteel Steels, ABG Shipyard, Jyoti Structures, Monnet Ispat & Energy, Lanco Infratech, Amtek Auto, and Era Infra Engineering are likely the 12 identified accounts, according to recent media reports. Appetite for stocks of private sector banks still remains high, as compared to that for public sector banks, which are seen the worst hit by asset quality pressures. Domestic institutional investors, especially mutual fund houses, are also choosing stocks of non-bank finance companies and housing finance companies over banks, adding that this could weigh on banks in the upcoming week.

Source : Cogencis Information Services Ltd.