Share prices of unsuccessful banking licence applicants fall

A day after RBI shortlists two entities to set up banks.

By: ENS Economic Bureau | New Delhi | Published: April 4, 2014 1:11 am

A day after the Reserve Bank of India announced IDFC and Bandhan Financial Services as the two entities to have received its in-principle approval to set up a bank, share prices of unsuccessful banking licence applicants tumbled by up to 10 per cent on Thursday. The day also saw the benchmark Sensex at the Bombay Stock Exchange fall by 0.2 per cent to close at 22,509.

On Wednesday, the RBI shortlisted two entities out of the 25 applicants to set up a bank and thereby brought an end to speculations around who will get a licence to run a bank. While shares of L&T Finance and IFCI fell by 9.7 and 8.5 per cent during the day, IDFC, one of the companies chosen by the RBI to set up a bank, saw its share prices jump by 8.7 per cent during the day even though it later closed at Rs 124.9 witnessing a fall of 2.4 per cent.

Srei Infrastructure, JM Financial, Magma Fincorp and Reliance Capital too fell between 4 and 8 per cent during the day. Value Industries and Edelweiss Financial Services were the only two to have closed in the black.

While 25 companies had applied with RBI, shares of several companies (applicants), which were listed at the stock exchange, witnessed a jump in their share prices over the last nine months. Share price of Muthoot Finance rose by 65 per cent between June 28, 2013, and April 2, 2014. In the same period the share prices of Srei Infrastructure, Bajaj Finserv and Value Industries rose by 33, 22 and 15 per cent respectively.

While the RBI received applications from 26 entities on July 1, 2013, there were 25 hopefuls after Tata Sons withdrew its application.

The RBI decision came after the Election Commission gave its nod to the RBI on Tuesday to announce the names of entities that have been granted a banking license, following which the RBI on Wednesday disclosed the names of the two successful applicants.

The RBI has also agreed to consider the application of India Post in consultation with the government and has also advised other applicants to apply afresh after the central bank comes out with new guidelines on granting licences “on tap”.

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