Shares of bank aspirants may take a tumble on RBI shock

Tags: News
With the Reserve Bank of India (RBI) awarding only two bank licences on Wednesday, other aspirants that failed to make the cut are likely to see some correction in their shares in the short run.

Among the 25 contenders in the race for bank licenses were several listed companies such as LIC Housing Finance, L&T Finance, Reliance Capital and Aditya Birla Nuvo.

Shares of many of these NBFCs rallied up to 12.50 per cent in Mumbai trading on Wednesday after the election commission gave in-principle approval to RBI to grant the licences.

“We are surprised,” said DK Aggarwal, CMD at SMC Investments and Advisors. “There were many strong contenders. We see some sharp correction on those counters in the near future.”

RBI admitted its approach in this round of bank licensing was conservative.

“At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance,” the central bank said in a statement.

Shares of IDFC rose 3.98 per cent to Rs 128 on Wednesday. It was one of the two aspirants picked by the central bank to grant bank licence; the other being Bandhan Financial Services, a Kolkota-based microfinance firm.

“IDFC has been our top pick for quite some time. Its selection for bank licence is in line with our expectations. However, shares of other NBFCs that had rallied on bank licence hopes are expected to see some correction,” said Saday Sinha, banking analyst at Kotak Securities.

Shares of JM Financial gained 12.45 per cent to Rs 28 on Wendesday, while Reliance Capital rose 4.34 per cent to Rs 356.20. Among others, IFCI, Srei Infra Finance, Manappuram Finance, Shriram Transport, Edelweiss Securities and Muthoot Finance climbed between 1.42 per cent and 4.78 per cent.

State-run power finance firms Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) gained 4.20 per cent and 3.30 per cent, respectively. LIC Housing Finance, one of the major contenders, advanced 2.59 per cent to Rs 77.25.

“Investors would be disappointed a bit. However, it does not mean their banking dream is over. RBI has said that it would give more licences ‘on tap’ basis. But that may be at least six months away,” said Rikesh Parikh, assistant vice-president at Motilal Oswal Financial Services.

Fundamentals of the NBFCs have remained a concern. Crisil Ratings says the weakness in the performance of retail NBFCs will continue through the first half of 2014-15.

“The growth in vehicle finance, the largest segment, is expected to remain moderate at around 8-9 per cent in 2014-15. We expect housing finance companies (HFCs) to maintain a relatively stable performance in 2014-15. Growth is expected to remain steady at around 19-20 per cent, driven primarily by individual home loans in tier-II and tier-III cities, and loans against property,” it said.

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