Asian stocks are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 1.04% while the Hang Seng is up 1.28%. The Nikkei 225 is trading up by 3.06%. Overnight, the US stocks closed higher after volatile trade. S&P 500 at 2,695 points is up 1.7%.

Back home, India share markets opened on a strong note tracking global markets. Indian indices managed to recoup more than half its losses as investors resorted to value buying following a sharp three-day correction. Besides global cues, market participants will also look forward to the outcome of the Reserve Bank of India's monetary policy review today.

The BSE Sensex is trading higher by 247 points while the NSE Nifty is trading higher by 78 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 1.5% & 2.2% respectively.

All sectoral indices have opened the day in green with consumer durables stocks and realty stocks witnessing maximum buying interest. The rupee is trading at 64.27 to the US$.

Telecom stocks opened the day on a mixed note with Himachal Futuristic & Tata Communications leading the gainers. As per an article in a leading financial daily, UK's Vodafone is in the final stages of talks to sell its entire 42% stake in Indus Towers for about US$5 billion, raising Bharti Infratel's holding in the company to 84% through a share-swap deal.

Reportedly, Vodafone's stake is pegged at around US$5 billion. However, the final number will be an outcome of the impact of tower cancellations that will arise once the different telcos consolidate the overlapping tenancies.

Cancellation of tower rentals will significantly hurt operating profits of Indus Towers, which in turn could depress valuations, the reports noted.

Bharti Infratel, a subsidiary of Bharti Airtel owns 42% in the Indus Towers joint venture. While Idea Cellular has a 16% share in it. The residual 42% is held by the UK-based telco.

The no-cash transaction, involving a share swap, will see Vodafone getting a smaller pie of the combined Bharti Infratel.

Last year, Vodafone and Idea announced a merger that will create the country's biggest telecom services company. Bharti has taken over Tata Teleservices' consumer mobile services and Norway-based Telenor's Indian arm, Uninor.

Along with these mergers comes the sector's anticipated reduction in infrastructure and people overlaps. Indus Towers had 122,920 telecom towers at the end of June 2017, with 297,867 slots on rent. One way is for shareholders to accept a common number of cancellations, and the other is to pay an upfront fee to Indus Tower, the reports noted.

Bharti Infratel share price opened the day up by 1.6%.

Moving on to the news from oil & gas sector. As per an article in a leading financial daily, public sector banks (PSBs) have written off loans worth Rs 536.3 billion in the six months to September this financial year.

Public sector banks wrote off (including through compromise), Rs 490.2 billion during 2014-18, Rs 816.8 billion in 2016-17 and Rs 536.3 billion during financial year 2017-18 up to 30 September 2017.

Further, PSBs had written off non-performing assets (NPAs) of Rs 2.5 trillion cumulatively during five years ending 31 March 2017.

As per RBI guidelines, NPAs including those against which full provisioning has been made, are removed from the balance sheet of the banks on completion of four years. This is done for tax benefit and capital optimization. And borrowers of such loans continue to be liable for repayment.

One shall note that, PSBs have been struggling with their collections on corporate loans. As a result, they have been reluctant to even lend to healthy companies. As a result, growth of these companies has suffered.

The Indian government has recently stepped up its efforts to address the problem. As part of this, the government has amended the Banking Regulation Act through an ordinance, giving more teeth to the RBI to deal with NPAs.

The recent recapitalization plan is one more attempt to bail out PSBs and infuse liquidity into the banking system.

But if historical data is anything to go by, implementation of such initiatives take a long time, especially in India. Recovery takes the longest time here as compared to other developed nations.

India takes an average of 4.3 years to resolve insolvencies as compared to one year in the US. Also, recovery rates in India are amongst the lowest at 26.4%.

Loan Recovery Data of Major Economies

Although recapitalisation will benefit PSBs, it appears to be a temporary cure for a recurring disease. The main problem is the lending and corporate governance processes these banks follow. If there is improves in these operational processes, PSBs will continue to underperform in the long term.

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