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Taking cues from this new act, most of the Bank Stocks including HDFC Bank and SBI, rallied on Thursday; as the passage of the Bankruptcy Code in Parliament has rekindled investor hopes on the country's banks hit by rising bad loans.
Analysts, across the board expect a number of rating upgrades in the next few months as the implementation of the code, which suggests a time-bound settlement process for insolvent entities, at a time when some bank stocks are trading at their 2-3-year lows due to high non-performing assets (NPAs) in their books.
The bankruptcy legislation will set a time limit of 180 days - which can be extended by 90 days if three-fourths of creditors agree - to make a resolution when a borrowing entity fails to make loan repayment on schedule. If the borrowing entity fails to stick to the time limit, then the company will be liquidated.
Most analysts said this would give much needed confidence to long only funds to buy into the banking sector.
The bankruptcy legislation will set a time limit of 180 days - which can be extended by 90 days if three-fourths of creditors agree - to make a resolution when a borrowing entity fails to make loan repayment on schedule. If the borrowing entity fails to stick to the time limit, then the company will be liquidated.
Most analysts said this would give much needed confidence to long only funds to buy into the banking sector.
"Long only funds with contrarian bets are expected to invest in lenders such as ICICI Bank, Axis Bank, SBI, Bank of Baroda that stand out as major beneficiaries from the bankruptcy bill," said Kunj Bansal, chief investment officer-equity at Centrum Wealth Management.
Here are some inputs regarding my recommendations on banking stocks:
(i) Allahabad Bank Ltd (Rs.53.40): As long as the scrip does not break Rs.52.35, on the downside, the investors can continue to accumulate it on dips and can wait for it to break out above Rs.55.50.
(ii) State Bank of India Ltd (Rs.188.40): It closed near the day's high of Rs.189.40, adding to the further bullishness. As long as it does not break Rs.183.80, on the downside, the traders can continue to accumulate the stock and wait for a break out above Rs.191.55.
(iii) Punjab National Bank Ltd (Rs.79.50): As long as the scrip does not break below Rs.77.50, the traders can accumulate the scrip, waiting for it to break Rs.83.50 on the upside.
Nomura in a report said, “India currently ranks 136 in the World Bank’s resolving insolvency ranking; It takes 4.3 years to resolve insolvency and the recovery rate (at 25.7 cents to a dollar) is very low. The Code will play a key role in improving the ease of doing business in India.”
Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.
The government expects that the new framework will help in improving India’s position in the World Bank’s ease of doing business ranking.
The World Bank estimates that winding up an ailing company in India typically takes four years, or twice as long as in China and Russia, with an average recovery of 25.7 cents on the dollar, one of the worst rates in emerging markets.
Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Bankrupt individuals would be barred from contesting elections as well.
Bankers say the courts are usually reluctant to sign "death warrants" against defaulting companies to safeguard jobs, often resulting in delays in winding-up procedures and poor loan recoveries.
The new law virtually empowers creditors to decide whether a defaulter is declared insolvent or not, though legally their decision could still be challenged in the higher courts.
Currently, over 70,000 liquidation cases are pending in debt recovery tribunals and courts.
To conclude, I would like to point out that: the new bankruptcy code has provisions to take tough and time bound action against corporate defaulters and help Indian banks to recover nearly 8 lakh crore, in troubled loans. In other words, the insolvency and bankruptcy code, will strengthen hands of lenders to recover outstanding debts by setting a deadline of 180 days for companies to pay or face liquidation.
You can go full hog on the banking counters, on Friday.
Insolvency is a situation where an individual or a company is unable to repay their outstanding debt.
The government expects that the new framework will help in improving India’s position in the World Bank’s ease of doing business ranking.
The World Bank estimates that winding up an ailing company in India typically takes four years, or twice as long as in China and Russia, with an average recovery of 25.7 cents on the dollar, one of the worst rates in emerging markets.
Under the new law, a debtor could be jailed for up to five years for concealing property or defrauding creditors. Bankrupt individuals would be barred from contesting elections as well.
Bankers say the courts are usually reluctant to sign "death warrants" against defaulting companies to safeguard jobs, often resulting in delays in winding-up procedures and poor loan recoveries.
The new law virtually empowers creditors to decide whether a defaulter is declared insolvent or not, though legally their decision could still be challenged in the higher courts.
Currently, over 70,000 liquidation cases are pending in debt recovery tribunals and courts.
To conclude, I would like to point out that: the new bankruptcy code has provisions to take tough and time bound action against corporate defaulters and help Indian banks to recover nearly 8 lakh crore, in troubled loans. In other words, the insolvency and bankruptcy code, will strengthen hands of lenders to recover outstanding debts by setting a deadline of 180 days for companies to pay or face liquidation.
You can go full hog on the banking counters, on Friday.