Bank stocks surge up to 9% on NPA resolution push

Bank stocks were in the limelight on Thursday, surging by up to 9% on the government's decision to put in place a mechanism to effectively deal with the problem of mounting bad loans in the sector.

In this regard, a proposal to amend Section 35 A of the Banking Regulation Act through the ordinance route was approved by the Cabinet on Wednesday.

Reacting to the development, shares of Indian Overseas Bank (IOB) zoomed 9.12%, Bank of Maharashtra surged 6.2%, and Union Bank of India rose by 4.7% on the BSE.

Among others, Punjab National Bank (PNB) climbed 3.21%, Andhra Bank went up by 2.82%, Bank of Baroda (BOB) by 2.68%, and State Bank of India (SBI) by 2.57%.

The amendment to the Banking Regulation Act will empower the Reserve Bank of India (RBI) to issue direction to banks to recover non-performing assets (NPAs) from loan defaulters.

After the Cabinet meeting, Finance Minister Arun Jaitley said the government took some important decisions in respect of the banking sector.

Public sector banks (PSBs) are saddled with NPAs or bad loans to the tune of a staggering Rs 6 lakh crore. Bad loans rose by over Rs 1 lakh crore in the first nine months of the last fiscal to Rs 6.07 lakh crore by December 31, 2016.

Gross NPAs of PSBs stood at Rs 5.02 lakh crore at the end of March 2016, up from Rs 2.67 lakh crore at the end of March 2015.