BSE Sensex up 1.1 pct; banks lead

MUMBAI (Reuters) – The BSE Sensex rose more than 1 percent on Friday morning, with banks leading the gains as markets around Asia rose on expectations that U.S. jobs data would reinforce signs of economic recovery.

State Bank of India was up 3 percent and ICICI Bank 1.1 percent, with sentiment improving after Standard & Poor's said on Thursday banks would gain more than they would lose from tighter loan provisioning requirements.

On Oct 27, the Reserve Bank of India (RBI) said banks had to increase the minimum provision ratio for bad debts to 70 percent by September 2010.

S&P said the changes would boost banks' provisioning cushions and bring coverage ratios in line with their major Asian peers.

"People made too much out of RBI's direction to increase provisioning on NPAs (non-performing assets)," said Manish Sonthalia portfolio manager for portfolio management services at Motilal Oswal.

"The profits of the bank will be hit, but the impact is overplayed," he said, adding that he is positive on select banking stocks including SBI and ICICI.

At 11:56 a.m. (0626 GMT), the 30-share BSE Index was up 1.1 percent at 16,244.71, with 25 of its components rising.

"Market should head higher after correcting recently, as broadly the fundamentals stay positive," Sonthalia said.

"Third-quarter results should be much better than a year before and we may see an earnings upgrade after that," he added.