Financial stocks rally, existing banks drop on new license norms

Financial stockssurged on Monday after India's central bank paved the wayfor entry ofnew players in the banking space. Old small private sector banks also gained expectations of becoming likely acquisition target. However, existing banking stocks dropped on worries over likely increase in the competition.

Aditya Birla group stocks Aditya Birla Money jumped 9.97% and Aditya Birla Nuvo climbed (0.91%). Religare Enterprises jumped 8.75%.

L&T Finance Holdingssurged 4.96%, followed by SREI Infrastructure Finance (4.03%), Bajaj Finance (2.79%), LIC Housing Finance (2.73%) andMahindra & Mahindra Financial Services (0.68%).

In public sector,Rural Electrification Corporationgained the most with rise of 1.16%, followed by IDFC (0.58%) and Power Finance Corporation (0.49%).

In small private sector banks, City Union Bankgained the most with rise of 4.20%, followed by Lakshmi Vilas Bank (1.06%).

In existing banks, UnionBank led the drop with loss of 2.5%, followed by YesBank (1.9%), IDBI Bank (1.8%), Canara Bank (1.6%), Bank of Baroda (1.4), Bank of India (1.2%) and PNB (1%). Kotak Mah Bank, Axis Bank, HDFC Bank, Federal Bank, Indusind Bank witnessed a fall of 0.1% to 0.8%.Dinesh Thakkar, chairman & managing director, Angel Broking said, 'This is a game changing event for the banking sector. With corporates prima facie being allowed, I would expect at least 8-10 very serious players with very deep pockets to enter the sector. Clearly, looking at strong ROEs of existing private banks, there is good pricing power in the sector, indicating the need for more competition.'

'With this move finally, competition will increase and in my view in the medium term, it is ultimately the PSU banks that are likely to be on the losing side of the market share dynamics. The move is likely to be positive for old private banks from an acquisition perspective and also for those NDFC's that are into priority sector lending, as new players are likely to initially rely on them for meeting targets,' Thakkar said.