RBI Covid 2.0 package to benefit these stocks

Analysts on Dalal Street believe that investors should stick with select financial counters after the Reserve Bank of India (RBI) Wave II package announced on Wednesday fortified its commitment ensuring financial markets and systemic stability.

Cheering the development, the BSE Sensex rallied 424 points, or 0.88%, to 48,677.82 in the previous trading session. Likewise, the Nifty 50 index gained 121.35 points, or 0.84%, to 14,617.40.

Term liquidity facility of Rs 50,000 crore
There are expectations that the additional liquidity infusion, expansion of priority sector lending and restructuring measures targeted at MSMEs, small business and microfinance and small banks should limit enlargement of reported bad assets. Also, the Rs 50,000 crore Covid-19 on-tap liquidity window to support health care infrastructure along the extended overdraft facility for state governments should help bring down the economic cost of Wave II.

Stocks to benefit
Commenting on the announcement, ICICI Securities said, “Banks to see two-way benefits as borrowing at term repo rate for lending to the said sector. This Covid loan book worth of funds parked at RBI is expected to earn 40 basis points extra as an incentive. It is margin accretive for banks. Credit flow towards entities related to the healthcare segment shall increase, as banks get to borrow up to Rs 50,000 crore for lending towards the same and are adequately incentivised.”

SLTRO for small finance banks
RBI Governor Shaktikanta Das also announced that a special long-term repo operations (SLTRO) to the tune of Rs 10,000 crore at repo rate, is being introduced for small finance banks for fresh lending up to Rs 10 lakh per borrower. This facility will be available till October 31, 2021.

In view of fresh challenges, small finance banks are now permitted to regard fresh on-lending to microfinance institutions with asset size up to Rs 500 crore, as priority sector lending. This facility will be available up to March 31, 2022.

Stocks to benefit
ICICI Securities highlighted that the announcement is positive for small finance banks like Equitas, AU Small Finance Bank, Ujjivan as they can borrow at a cheaper rate and lend to individual borrowers and provide support where stress is expected.

On the other hand, JM Financial added that the new restructuring scheme is expected to create uncertainty regarding the asset quality for the banks, but the measures were on expected lines. “We see larger banks in a relatively better situation with respect to capital and provisions against mid and smaller-sized peers. HDFC Bank, ICICI Bank and State Bank of India are our top picks in the space,” JM Financial added.

Second purchase of government securities

Lastly, Das also announced that the second purchase of government securities for Rs 35,000 crore will be conducted on May 20, 2021. Earlier, the first auction of Rs 25000 crore under G-SAP 1.0 was conducted on April 25, 2021.

Positive for PSU lenders
JM Financial believes the announcement is positive for PSU Banks.