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ALERT: Banking Sector: RBI new NPA norms, more flexibility and acceleration in resolution process – Positive read thru for Banks

Reserve Bank of India (RBI) has come out with a revised framework for resolving stressed assets wherein lenders have been given a 30-day period on whether to label an account as a non-performing asset.  The central bank has made it voluntary for lenders to take defaulters to the bankruptcy court and the framework now applies to a larger universe of lenders, which includes small banks and non-banking finance companies (NBFCs). The code also introduces penal provisions for lenders, for resolution plans that are not implemented. Hence, a lender will have to set aside 20% more provisions if the plan is not implemented within 210 days from the date of default and 35% if not implemented within 365 days of default.

 

View: Positive read thru for banks. The revised framework provides more flexibility for timely resolution. Also, the uncertainty which had come up after the Supreme Court striking down the erstwhile Feb 12 circular, has ended and thus will be seen as positive.

 

J&K Bank: The anti corruption squad has raided the Headquarters of the bank on alleged irregularities in appointment of staff. The Chairman of the Bank, Mr Parvez Ahmed has also been removed from the bank –  Negative read thru

 

M&M, Maruti Suzuki: In light of weak demand, M&M has announced no production days to the tune of 5-13 days in the current quarter. The productions cuts are planned across the auto and farm equipment sector. Also, Maruti Suzuki  has cut production by 18% yoy in month of May 2018 due to weak demand scenario and market share loss to competition (Maruti May wholesales dropped 22% yoy). Negative read thru

 

Motherson Sumi Systems: USA President Donald Trump has suspended plans to impose tariffs on imports from Mexico. The move is sentimentally positive for Motherson as the company supplies components to its USA customers from the Mexico plant.

 

MOIL Limited: Has received environmental clearance for manganese ore mine in an area of 49 hectares for additional production capacity of 1.2 lakh tonnes per annum. This area is adjacent to Ukwa mine and the total reserve of this new lease area is estimated at 3.8 million tonnes and is expected to touch ore body and production in 2020 – positive read through for MOIL as the mine has potential to increase manganese ore production by ~9% from production level of 1.3 million tonnes in FY2019.

 

Larsen & Toubro, Mindtree:  The company announced an open offer to acquire up to 5.13 crore shares (31% stake for  Mindtree) at Rs 980 per share amounting to Rs 5,029.8 crore. The offer price is at a premium of 1% from the current market prices LTP Rs 969, no change in open offer price. Tendering for open offer will commence on Monday, June 17, 2019 and close on Friday, June 28, 2019- Positive read through for L&T, Neutral for Mindtree

 

Oil & Gas: As per media reports, Oil India have emerged as highest bidder of 12 blocks while ONGC and Vedanta Limited are highest bidders for 9 blocks each and Reliance Industries-BP consortium is expected to win 1 block in KG basin under the recent bidding offer in the Open Acreage Licensing Policy (OALP) round-II and III – positive for Oil India, ONGC, Reliance Industries and Vedanta Limited.

 

Zee Entertainment Enterprises: Brickwork Ratings has reduced the credit rating of non-convertible preference shares issued as bonus to its equity shareholders in 2014 at BWR AAA, with credit watch turning from developing implications to negative implications –Negative

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