Sensex Opens Flat; Bank Stocks Lead The Losses

Asian equity markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.43% while the Hang Seng is down 1.01%. The Shanghai Composite is trading down by 0.07%. Overnight US stocks closed slightly lower after the Federal Reserve raised key interest rate by a quarter of a percentage point.

Meanwhile, share markets in India have opened the day on a flat note. The BSE Sensex is trading higher by 27 points while the NSE Nifty is trading lower by 7 points. The BSE Mid Cap Index and BSE Small Cap index both opened the up by 0.1% & 0.2% respectively.

Sectoral indices have opened the day on a mixed note with realty stocks and energy stocks leading the pack of gainers while information technology stocks and bank stocks have opened the day in red. The rupee is trading at 64.31 to the US$.

Bharti Airtel share price gained over 1.2% after it was reported that the company added more active subscribers than Reliance Jio Infocomm in April for the first time since the latter's launch in September.

The company notched up 2.6 million active subscribers as compared to Jio's 400,000 active (VLR) customer adds.

In the latest development, with the insurance regulator rejecting the HDFC Life and Max Life merger structure, HDFC is looking at selling 10% of its stake in its life insurance arm through an initial public offering (IPO).

Reportedly, the estimated asset size of this merger would have been approximately Rs 1.1 trillion if not more. As per reports, the parties had set 2018 as the deadline for completion of merger. No doubt, the regulator's rejection has thrown a spanner into the works.

As per IRDAI, the proposed merger of Max Life and HDFC Life violates Section 35 of the Insurance Act, 1938, which does not allow merger of an insurance company with a non-insurance firm.

What is supporting an IPO decision is the positive market sentiment in respect of insurance. The only listed insurer ICICI Prudential, which had a couple of months earlier fallen below issue price, is now trading at a premium.

The insurance sector in India is set to grow leaps and bounds, with FDI caps being liberalised and FIPB approvals for foreign investment also done away with. It is only a matter of time that this sector will witness a flurry of M&A activities which will require the regulator to act swiftly and proactively as far as matters such as approval are concerned, the reports noted.

Moving on to the news from stocks in bank sector. As per an article in the Livemint, the finance ministry has asked four big lenders to explore the possibility of merging with smaller banks, as the government moves to consolidate public sector banks.

The government is holding discussions with six or seven banks to examine synergies as it pushes for consolidation among public sector banks. Kicking off the process, State Bank of India has already merged with its associate banks.

The government has picked relatively stronger lenders including Punjab National Bank, Bank of Baroda, Bank of Indiaand Canara Bank as possible acquirers in this process of consolidation. Dena Bank and Vijaya Bank were among the banks that could be merged.

Candidates for bank consolidation are being chosen on the basis of their financial health, non-performing assets, geographical base, and human resource and technological integration.

Bad Loans Inventory Bloats Up

 

The push for consolidation among public sector banks comes at a time when the Indian banking sector is facing a bad loan crisis. Stressed assets on the books of Indian banks have hit 17% of all loans

An important consideration is that the stressed assets of a bank up for acquisition should not burden the stronger bank. State-owned banks are struggling with over Rs 6 trillion of NPAs.