RBI's hand behind today's rally in banks, other financial stocks

Shares of banks and NBFC shares like Bajaj Finance on Thursday rose up to 4% after the Reserve Bank of India (RBI) relaxed rules regarding provisions for investments in Alternative Investment Funds (AIFs) by all regulated entities..

Bajaj Finserv and Bajaj Finance rallied 4% each, while heavyweights ICICI Bank, HDFC Bank, and SBI were the top contributors to the upside seen in Nifty as well as Sensex...

RBI's December circular prohibiting regulated entities such as NBFCs from investing AIFs having downstream investments either directly or indirectly in a debtor company of the entities had stressed investors..

Rather than a 100% provision, banks and NBFCs need to set aside funds to only cover that part of their investment in an AIF that is further invested in the debtor company...

There is an adequate case for exempting CCPS investments as well," Punit Shah of Dhruva Advisors said.. Technically, the reading of the circular is that in a Rs 1,000 crore fund, for example, if the RE investment is Rs 100 crore and if the AIF, for example, has invested in common debtor entity which is only Rs 50 crores, then now the provisioning requirement would be to the tune of the Rs 50 crores and not the entire Rs 100 crores of AIF exposure by the RE, Dipen Ruparelia, Head of Products, Vivriti Asset Management, said.. Previously, the interpretation was that even in the case of the exposure by the AIF was only Rs 10 crore, the provisioning requirement was on the entire investment of Rs 100 crore by the RE...

You might be interested in