Banking stocks fall after RBI rejigs bad loan rules
Mumbai: Banking stocks fell on Wednesday morning as analysts expect that provisioning state-owned lenders will remain at an elevated level after the Reserve Bank of India (RBI) scrapped corporate debt restructuring (CDR), strategic debt restructuring (SDR), sustainable structuring of stressed assets (S4A) and joint lenders forum (JLF) schemes to restructure defaulted loans.
Bank of India fell 4.4%, Punjab National Bank 4.3%, Corporation Bank 4.1%, IDBI Bank Ltd 3.1%, Allahabad Bank 2.8%, Syndicate Bank 2.7%, Andhra Bank 2.3%, Dena Bank 2.2%, Union Bank of India 2%, Canara Bank 2%, Oriental Bank of Commerce 2%, Axis Bank 1.6%, Indian Overseas Bank 1.6%, State Bank of India 1.5% and ICICI Bank was down 1.4%.
“Restructured loans should be subject to stringent classification & provisioning - RBI has just done that and brought these closer to internationally accepted standards. New rules are sensible, provides limited wriggle room & importantly provides an inner view of RBI’s supervisory review (e.g. NPL or none-performing loan divergence). NPLs may increase, stocks could react negatively but systemic stress is declining and that’s key,” said Jefferies India in a note to its investors.
“Fourth quarter could see higher NPL formation, but this is from the indicated stress pool, which has peaked. Further, Q4FY18 & Q1FY19 will see few large ticket resolutions which should aid profitability,” the report added.
“We believe that banks may have to provide Rs2 lakh crore more NPA provisions which would impact the profitability of banks mainly public sector banks in the short term. Meanwhile, new RBI’s guidelines are further a move for creating a more stable banking system in the medium to long term,” said Satish Kumar, research analyst, fundamental research desk, Choice Broking.
On Monday, the central bank withdrew a host of norms such as SDR and S4A, and made the process time-bound. The new rules stipulate that starting 1 March, lenders must implement a resolution plan within 180 days for accounts of at least Rs2,000 crore.
RBI has issued definitions of different resolution plans and an indicative list of financial difficultly, and directed lenders to share data on certain defaulted borrowers with the central bank’s database on large exposures on every Friday.
The large accounts are mainly those where banks have initiated resolution and are classified as restructured standard assets. Indian banks are sitting on a stressed assets pool of over Rs10 trillion.