Sensex Trades Marginally Lower; Tech Mahindra & Bajaj Auto Top Losers

Tue, 31 Dec 12:30 pm

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Share markets in India are presently trading on a negative note. The BSE Sensex is trading down by 96 points while the NSE Nifty is trading down by 29 points.

The BSE MidCap index and the BSE SmallCap index are trading up by 0.2% and 0.4%, respectively.

Sectoral indices are trading on a mixed note with stocks in the automobile sector and energy sector witnessing selling pressure, while realty stocks are trading in green.

The rupee is trading at 71.26 against the US$.

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In news from the banking sector, the Reserve Bank of India (RBI) on Monday restricted urban co-operative banks (UCBs) from offering large corporate loans through several changes to lending norms.

The central bank slashed single and connected borrower exposure for UCBs, hiked the priority sector lending (PSL) target and specified a portfolio mix for at least half of their loan books.

The prudential exposure limits for UCBs for a single borrower and a group of connected borrowers were lowered to 10% and 25%, respectively, of their tier-I capital. These limits were earlier at 15% and 40%, respectively.

RBI also proposed that UCBs shall have at least 50% of their portfolio comprising loans of not more than Rs 2.5 million per borrower. Loans shall include all types of funded and non-funded exposures credit.

Note that this category of lenders came into focus on 24 September, when RBI put severe curbs on Punjab and Maharashtra Cooperative Bank (PMC Bank), including on cash withdrawals, amid a probe into accounting lapses.

Cash withdrawals were capped at Rs 1,000 per account for six months, but subsequently relaxed to Rs 50,000 as panic spread among depositors.

The PMC Bank fiasco showed how the bank had disbursed most of its loans to a single borrower group.

In September, erstwhile MD of the bank, Joy Thomas reportedly admitted to RBI that the bank's actual exposure to the real estate firm Housing Development and Infrastructure (HDIL) is more than Rs 65 billion.

Reportedly, over 70% of the bank's advances went to HDIL group, which led to a huge crisis when the group defaulted on repayment.

The PMC bank fiasco has put small savers in the limelight yet again. These banks have poor lending practices. Depositors have had to pay the price time and again.

In the short run, this has an adverse effect on microfinance lending as well. Micro finance institutions (MFIs) are skeptical about lending to even genuine borrowers in an uncertain environment.

But this is actually a blessing in disguise for MFIs with strong business practices.

After all, last mile connectivity in lending is still a huge opportunity.

Huge Opportunity in Last Mile Lending in India

Here's what Tanushree Banerjee wrote about this in one of the editions of The 5 Minute WrapUp...

• The average ticket size of a microfinance borrower in India is around Rs 38,000 which is much lower than the global average (Rs 65,000).
  
  The sector itself has grown at an average annual rate of 27% for the last 4 years.
  
  Still states like Uttar Pradesh, Bihar, and Madhya Pradesh with a large rural population are highly under-penetrated even today.

A private bank that is part of Tanushree's 7 stocks to buy list has already taken a step in this direction.

It will be a big beneficiary when the microfinance boom plays out in India.

Moving on to news from the hotels sector, shares of Chalet Hotels jumped over 10% to hit an all-time high in early trade today after the company announced signing of five new agreements with Marriott International across Hyderabad and Mumbai.

In a media release, the company said, "under the agreement, Chalet would build hotels and extend contracts across brands such as W, Westin & Marriott Executive Apartment in Hyderabad and Mumbai."

Last week, the company had entered into a franchise agreement and other related agreements with Hyatt India Consultancy and its affiliates for the brand 'Hyatt Regency' in respect of its upcoming hotel at Airoli in Mumbai.

Chalet Hotels share price is presently trading up by 4%.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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