Nifty Bank Dips After Hitting Fresh-High; PSU Bank Index Falls 3%

The Union Cabinet approved a plan to grant a Rs 30,600 crore government guarantee for security receipts issued by the National Asset Reconstruction Company (NARCL) as part of the resolution of bad loans, putting banking stocks in the spotlight.

The advances in the morning session were led by banking equities, with the Nifty Bank index reaching a fresh high of 38,045. Kotak Mahindra Bank, Axis Bank, and HDFC Bank led the financial stocks higher. Following this year's underperformance, analysts have become positive on banking stocks.

However, the banking stocks dropped after hitting a fresh high, PSU Bank index falls 3%, dragged by Bank of Maharashtra, Indian Overseas Bank, and PNB.

In a new move to clean up one of the world's largest piles of bad loans, Finance Minister Nirmala Sitharaman said on Thursday that the government will guarantee security receipts issued by its new bad bank worth Rs 30,600 crore. The guarantee will be for a five-year period.

The government has cleared another obstacle, allowing the long-awaited bad bank, National Asset Reconstruction Company Ltd. (NARCL), to begin operations. Experts believe that the move will satisfy banks' and the RBI's worries over incremental provisioning.

State Bank of India (SBI) touched a new high of Rs 471.90, up 2%. (NSE). The stock has now eclipsed its previous all-time high of Rs 467.45, which was reached on August 4, 2021.

According to ICICI Securities, is a step closer to the operationalization of NARCL's "bad bank" and is good news for banks, particularly PSU banks. The brokerage business noted in a letter that the government guarantee on securities receipts is advantageous for resolving large pressured accounts.