NSE Bank Nifty jumped over 550 points while S&P BSE Bankex was up over 648 points at the time of writing (around 01.42 pm) on the final trading day of FY 2023-24 i.e. today.
Nifty Financial Services Index also jumped over 1.24% or 295.55 points to 21,087.95. Meanwhile, the BSE Sensex was up by 900 points and NSE Nifty 293.90 points higher from the opening level today. Wondering, what is behind this sudden surge in banking and financial stocks today?
Well, there are several factors that seem to have worked today. But one of the most interesting ones is an RBI decision that apparently acted as a fuel for banking and financial services stocks like Bajaj Finance (up 3.7%), Bajaj Finserv (up 4.51%) and SBI (up 2.97%). Bajaj stocks also benefited on the news of potential IPO of Bajaj Housing Finance.
Also Read: How will T+0 settlement benefit stock market traders?
What is the RBI’s decision?
The Reserve Bank of India (on Wednesday) relaxed its previous norms for Alternative Investment Funds (AIFs). In December 2023, RBI had mandated lenders to set aside higher provisions if they purchased AIFs that were, in turn, investing in the lender’s borrowers.
Here’s a look at some key changes announced by RBI to its previous rules for investments into AIFs by regulated entities (REs).
1. Previous Rule
“REs shall not make investments in any scheme of AIFs which has downstream investments either directly or indirectly in a debtor company of the RE”.
What’s the change? RBI on Wednesday (March 27) said the “downstream investments” mentioned above “shall exclude investments in equity shares of the debtor company of the RE, but shall include all other investments, including investment in hybrid instruments.”
2. Previous Rule
“In case REs are not able to liquidate their investments within the above-prescribed time limit, they shall make 100 percent provision on such investments.”
What’s the change? RBI now says that provisioning in terms of above rule “shall be required only to the extent of investment by the RE in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme.”
3. Previous Rule
“In addition, investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ shall be subject to full deduction from RE’s capital funds.”
What’s the change? RBI now says that the above “shall only be applicable in cases where the AIF does not have any downstream investment in a debtor company of the RE.”
The RBI has also said that “investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the Circular” issued in December.
Ever wondered if there was a simple and effective way of identifying multibagger stocks in 2024. You can learn here
Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in market-linked instruments.
