Private Banks Surge After RBI Chief Says Loan Restructuring Will Help Revive Economy

Banking shares were outperforming the benchmarks in trade on Monday after a report suggested that the Reserve Bank of India Governor Shaktikanta Das said that the new measures to allow lenders to restructure loans will provide a "durable" resolution for cash-strapped businesses and help revive the economy. In an interview, to news channel CNBC Awaz, Mr Das said, "On one hand health of banks is very important and on the other hand businesses are under a lot of stress due to covid."

Mr Das said the moratorium was a "temporary solution" for lockdown and not a permanent fix.

The gauge of banking shares on the National Stock Exchange - Nifty Bank index -surged as much as 2.38 per cent or 531 points to hit an intraday high of 22,830.85.

Ten of 12 shares in the Nifty Bank index were trading higher led by Kotak Mahindra Bank's 4 per cent gain. HDFC Bank, IndusInd Bank, ICICI Bank, IDFC First Bank, Axis Bank, Bandhan Bank and State Bank of India also rose between 1-3 per cent.

On the flipside, the gauge of state-run lenders - Nifty PSU Bank index - was trading on a flat note. With six stocks declining, one unchanged and five advancing.

Mr Das said banks will be able to extend or provide a new moratorium to borrowers under the new plan. Details on the eligibility criteria for companies will be announced by September 6 after an expert panel considers the financial parameters and banks will be able to internally identify the accounts they would like to restructure, Mr Das added.

Authorities are looking to support an economy that's been hit hard by the coronavirus, while ensuring the stability of a financial sector where bad-debt is set to swell to a two-decade high. Banks are struggling to accelerate credit growth to revive the economy, which is set for its first annual contraction in more than four decades. Lenders are also dealing with a pile of bad debt that was high even before the pandemic.

(With inputs from Bloomberg)