Banking stocks crashed today after Modi government exempted companies from insolvency process for one year under the Insolvency and Bankruptcy Code. The move aims to give relief to companies defaulting on loans due to the COVID-19 stress.
However, banks are expected to see a fresh series of bad loans and will be unable to take defaulting companies to bankruptcy court.
Subsequently, banking stocks were top losers with BSE bankex tanking 1,443 points to 20,132 today.
Bank Nifty too lost 1260 points to 17,573. IndusInd Bank was top loser falling 10% on Sensex and Nifty each.
Shares of Axis Bank (7.55%), ICICI Bank (7.44%) , SBI (6.61% ), HDFC Bank (5.83%) and Kotak Mahindra Bank (5.47%) closed in red.
Meanwhile, Sensex lost 1,068 points to 30,028 points and Nifty closed 313 points or 3.43 % lower to finish at 8,823. today.
Announcing fifth tranche of economic stimulus package on Sunday, Finance Minister Nirmala Sitharaman on Sunday said coronavirus-related debt will be excluded from definition of default.
Minimum threshold to initiative insolvency proceeding has been raised to Rs 1 crore from Rs 1 lakh to benefit MSMEs, she said adding that an Ordinance will be promulgated to bring this change in IBC.
The minister also announced decriminalisation of the Companies Act in violations involving minor technical and procedural defaults including shortcoming in CSR reporting, inadequacies in board report, filing defaults and delay in holding AGM.