Stocks of non-banking financial companies gained on the bourses on hopes of getting banking licenses. Expectations were raised after the amendments to the Banking laws were passed in the lower house of the parliament. The amendments would allow the Reserve Bank of India to issue new licenses.

The stock of Shriram Transport Finance closed at Rs 765.75, up 0.82 per cent on the Bombay Stock Exchange. The stock touched an intra-day 52-week-high at Rs 784.90. Mahindra and Mahindra Financial Services closed at Rs 1,095.05, up 1.51 per cent from its previous close on the BSE.

“Many Non-Banking Financial Banking Companies (NBFCs) which are planning to convert themselves into banks are already starting at a reasonably good loan size book be it Shriram Transport , Mahindra and Mahindra Financials or Bajaj Finance,” said Rajat Rajgarhia,Director –Research, Motilal Oswal Financial Services.

“All of them have loan book sizes of between Rs 20,000- Rs 50,000 crore. And at some point of time as and when any of these get converted into banks they would need branch network. In the last one year we have seen 3-4 deals taking place. So the pace will remain excited, people will put their bets,” he added.

Analysts feel said that interest in these stocks will pick up following this positive news. Investors will gradually increase exposure in the sector as and when licenses begin getting rolled out. They are also positive about other NBFCs such as Bajaj Finance and L&T Finance Holdings, which hold a high possibility of getting licenses due to their reasonably good book size.

The stock of Bajaj Finance touched a new high to end the day at Rs 1,309.15, up 1.43 per cent from its previous close on the BSE.

“Based on the discussion paper and draft guidelines for the issue of licenses, L&T (through L&T Finance) looks like the most eligible candidate amongst corporates who have evinced interest in getting a bank license, as it is not a promoter driven corporate and has the requisite financial strength and corporate stature to promote a bank,” said a note from Angel Broking. On hopes of consolidation, the stocks of smaller private banks also gained.

(This article was published on December 19, 2012)
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