RBI raises provision norms for banks, stocks tank 2-5%

Most of the banking stocks tumbled on Tuesday afternoon trade after the Reserve Bank of India raised banks' provisioning requirement to 2.75% as against the existing 2% on restructured standard loan accounts. Higher provisions would eat away profits of the banks.

At the end of day's trade, SBI shares fell nearly 5% close at Rs 2,068 on NSE. Shares of other lenders including ICICI Bank , Punjab National Bank , Bank of Baroda , Bank of India , Axis Bank , Canara Bank too dropped in the range of 2-5.50%.

Both Canara Bank and Bank of Baroda tanked more than 5%. Punjab National Bank and Union Bank of India slipped around 4%. As per April-June quarter results (Q2 not yet announced), Canara Bank has a net restructured loan book, which is equal to 6.2% of their total loan book. For BoB, the gross standard restructured loans form around 5.6% of the total loan book. However, both the banks are not comparable to each other due to different pattern of reporting system.

When a borrower fails to repay a loan and asks for relaxation of original term and conditions from banks, it is called restructuring. As per existing norms, a loan account can be upgraded to standard asset category after restructuring.

However, RBI mandates provisioning requirement on restructured standard assets as borrowers may default again.

Earlier RBI proposed to form a working group under the chairmanship of B. Mahapatra, one of the executive directors of the central bank. It reviewed the existing prudential guidelines on restructuring of advances by banks/financial institutions. Mahapatra group had submitted the report in July and it was placed on the website of RBI inviting comments from the stakeholders. Final detailed guidelines are expected in January, 2012.

"As an immediate measure, it has been decided to increase the provision for restructured standard accounts from the existing 2.0 per cent to 2.75 per cent," RBI said in the September quarter policy statement.

Also read:   RBI keeps repo rate unchanged, cuts CRR by 25 bps  

                   Banks' financials a pack of lies, RBI keeping mum: Ambit

Meanwhile, analysts tracking banks are yet to figure out whether the new provisioning norms will be applicable on incremental basis or retrospective basis.

saikat.das@network18online.com