Sensex rises; banks up as RBI cracks down on bad debt

Indian shares rose on Monday as lenders such as State Bank of India gained after the central bank asked banks to start banktruptcy process against 12 large loan defaulters, raising hopes that reduction of bad debt will start to quicken.

The Reserve Bank of India urged lenders to initiate bankruptcy proceedings against a dozen companies, including Essar Steel, Bhushan Steel Ltd and Monnet Ispat and Energy Ltd, sources with direct knowledge of the matter said.

The RBI said it had identified the 12 defaulters last week, but did not publicise their names.

"There is a general feeling that non-performing asset (NPA) levels will come down after the RBI order to resolve NPAs of the country," said RK Gupta, managing director at Taurus Asset Management.

The broader NSE Nifty was up 0.37 percent at 9,623.65 as of 0644 GMT, while the benchmark BSE Sensex was 0.47 percent higher at 31,201.69.

The Nifty PSU Bank Index gained as much as 0.79 percent, with top lenders State Bank of India up as much as 0.7 percent and Canara Bank Ltd rising as much as 1.8 percent.

Loan defaulters that are facing bankruptcy proceedings however fell.

Lanco Infratech Ltd was down as much as 8.5 percent to 2.15 rupees, a record low, after it said it was one of the companies that had been identified by the RBI to start bankruptcy proceedings.

Shares of Monnet Ispat and Energy Ltd fell as much as 19.9 percent.

The Nifty Pharma Index was down as much as 1.08 percent as ongoing quality concerns raised by the U.S. Food and Drug Administration pressured pharma stocks.

Cipla Ltd, the biggest drag on the pharma index, was down 2 percent.