Shares of non-banking financial companies such as LIC Housing Finance, IFCI and Bajaj Auto Finance surged by as much as 81 per cent over a period of five months, on speculations of the entities seeking banking licences.
As per market speculations, these players entered the race for getting bank licences after Finance Minister Pranab Mukherjee mentioned in Union Budget 2010-11 that fresh ones would be issued to private players and non-banking financial companies.
Shares of Bajaj group firm Bajaj Auto Finance zoomed 81.2 per cent to settle at Rs 569.40 at the end of Friday's trade on the BSE. During the trade, the stock had touched its year-high level at Rs 579, as per analysis of NBFC stocks on the Bombay Stock Exchange during the March-July period.
On July 27, the Reserve Bank had said that it will come up with a discussion paper on granting banking licences to private sector players and NBFCs by the first week of August.
Non-banking Finance Companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank.
"The market is very excited about this move as there are huge amount of opportunities for the NBFCs if they succeed in getting banking licences. Also, they are in a great financial position to explore this opportunity, " Unicon Financial Services CEO Gajendra Nagpal said.
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Other stocks that rallied on the BSE during the period under review were of LIC Housing Finance (which jumped by 49.9 per cent), Indiabulls Financial Services (52.8 per cent) and IFCI (19.73 per cent). Besides this, LIC Housing Finance and IFCI had hit a 52-week high on the BSE on July 29 and July 30 respectively.
"Banking licence will be a sure shot way of making money. There will be a lot of wealth creation as it will be like RBI distributing gold to the contenders. However, it will take at least 2-3 years for the companies, which will get the licence, to materialise in terms of profit," SMC Capitals equity head Jagannadham Thunuguntla said.
IDFC and Religare Enterprises also witnessed an upsurge of 15.8 per cent and 9.7 per cent respectively during the March-July period.
Yes Bank, which received its banking licence in 2004, was the last private sector bank to get one.