MUMBAI: Indian shares rose on Monday as banking stocks gained on hopes that a central bank initiative directing lenders to start bankruptcy proceedings against large loan defaulters would help reduce the levels of bad debt hampering credit growth in the country.

The benchmark BSE index rose 0.82 percent and posted a record close of 31,311.57, while the broader NSE index ended up 0.72 percent at 9,657.55.

The Nifty Bank Index climbed 1.02 percent after touching a record high earlier in the session.

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 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 US Food and Drug Administration pressured pharma stocks.

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