Sensex rises on RBI's bank rules

Mumbai: The equity markets soared higher for the second consecutive day led by banking stocks after the Reserve Bank of India (RBI) relaxed the criteria for determining bank’s Tier-I capital. A rally in the global stocks amidst a recovery in crude oil prices and industrial commodities also helped the domestic equities to maintain their winning momentum.

Led by SBI and ICICI Bank, the Sensex surged 463.63 points or 1.95 per cent, posting its biggest two-day gains in last seven years to end the day at 24,242.98. While the shares of SBI climbed 11.50 per cent, the shares of ICICI Bank gained 7.36 per cent.

RBI on Wednesday said the revaluation reserves arising from change in the carrying amount of a bank’s property consequent upon its revaluation would be considered as Tier-I capital instead of Tier-II capital.

Moreover, the foreign currency translation reserves arising due to the translation of financial statements of a bank’s foreign operations to the reporting currency would also be considered as Tier-I capital.

“The RBI move is a step in the right direction and augurs well for PSU banks which are already reeling under capital constraints following higher asset quality stress and transition towards BASEL III framework,” said analysts at Edelweiss Financial Services. “Banks with higher share of overseas operations are likely to be key beneficiaries of this regulation.

Based on FY15 reported foreign currency translation reserves, we expect 10-40 basis points capital release for some banks,” said analysts at brokerage Motilal Oswal Securities.