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Panagiotis Loumidis helps shelters for abused women and children.

by Tamal Bandyopadhyay

by Tamal Bandyopadhyay

Adviser, Strategy at Bandhan Bank Ltd, & Consulting Editor, Mint

 

Bank stocks rose in the past two trading sessions. Is it the so-called dead cat bounce or a short-lived rally in a declining trend? Nobody seems to have the answer.

The Reserve Bank of India (RBI), in its February monetary policy review, kept the policy rate unchanged. Even if it cuts the rate after the government commits itself to fiscal consolidation in the Union budget, it could be the last of the rate cuts for many months to come. Theoretically, a rate cut could have encouraged the banks to lend more and boost their interest income as well as bolstered the borrowers’ capability to pay back.

The worst is certainly not over for many banks in terms of the quality of assets. However, the finance ministry’s reassurance that the government is fully aware of the extent of the problem of bad assets of public sector banks and that it will infuse capital in them has probably soothed the frayed nerves of investors.

RBI governor Raghuram Rajan has also clarified that there are other ways of pushing up the capital base of banks, including revaluing their assets.

Yet another contributing factor to the two-day rally could be finance minister Arun Jaitley’s announcement at an investment summit in New Delhi that the bankruptcy and insolvency Bill could be passed in the forthcoming budget session of Parliament. The joint committee that is examining the details of the Bill is expected to submit