Expect ‘bad bank’ to be game changer; prefer SBI, IndusInd Bank: ICICI Securities

Finance Minister Nirmala Sitharaman, on Thursday, announced that the Cabinet has cleared the formation of a 'bad bank'. The government will guarantee up to Rs 30,600 crore for security receipts issued by the National Asset Reconstruction Company Limited (NARCL). Nirmala Sitharaman also said that 15 percent cash payment will be made to banks for NPAs based on some valuation, and 85 percent will be given as Security Receipts. The government guarantee, which will be valid for five years, can be invoked by NARCL for meeting the shortfall between the face value of the Security Receipt and the actual realization upon resolution or liquidation. Kunal Shah, BFSI analyst at ICICI Securities, believes this resolution will definitely be key.

His preference is towards State Bank of India (SBI). SBI has a relatively larger chunk, which will get transferred to NARCL, around Rs 20,000 crore.

“Overall, in the last three quarters, SBI has surprised positively on the asset quality side and the performance has been even better than the private banks. So, to that extent, the preference within the PSU space is SBI,” he said.