India Stock Market Rocked by Sudden Plunge in Financial Shares
Comment of the Day

September 21 2018

Commentary by Eoin Treacy

India Stock Market Rocked by Sudden Plunge in Financial Shares

This article by Santanu Chakraborty, Abhishek Vishnoi and Nupur Acharya for Bloomberg may be of interest to subscribers.

Some investors are speculating that the Reserve Bank of India may tighten rules for housing finance firms after a long legacy of shoddy lending that’s resulted in ballooning bad debts. This comes after the central bank said Yes Bank’s chief executive officer will have to step down at the end of January.

“Investors are speculating that more bad loans may come to light as RBI may take stricter action,” said Soumen Chatterjee, head of research at Guiness Securities. The RBI has also taken a tough line with other private-sector bank CEOs in recent months. The central bank refused to extend the tenure of Axis Bank Ltd. chief Shikha Sharma, who said she would step down at the end of 2018 despite support from
shareholders.

The IL&FS downgrade and default may have nudged investors to avoid potential collateral damage in other financial stocks. “Downgrades are a serious possibility” for non-bank financial companies, Aneesh Srivastava of IDBI Federal Life Insurance Co. said.

Eoin Treacy's view

India’s bad loans have been a rumbling background issue for a long time and there have been announcements over the last year that the RBI was going to take a more robust approach to the problem. That issue may now be coming to the fore with the prospect of defaults rising.

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