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Last Updated : Feb 14, 2018 05:03 PM IST | Source: Moneycontrol.com

Double whammy for PSU banks: NPA rule, PNB fraud drags PSU banking index lower by 4.7%

In the PSU Bank index, the stock that got battered the most was Punjab National Bank which plunged 9.77 percent, followed by Bank of India which was down 7.8 percent, Oriental Bank of Commerce fell 7.73 percent, Allahabad Bank slipped 7.64 percent, Canara Bank was down 5.8 percent, and State Bank of India slipped 4.35 percent at the end of trade.

Banking stocks came under pressure today after the Reserve Bank of India (RBI) has revised the new stressed assets framework asking banks to resolve defaults within 180 days. Further, starting February 23, banks must immediately identify the defaults and make disclosures every Friday to the RBI credit registry.

PSU banks

Reacting to the news, public sector banks got hammered the most. The Nifty PSU Bank index tanked 4.78 percent on Wednesday compared to 0.1 percent rise in the Nifty Bank index, and 0.02 percent fall seen in Nifty Private Bank index.

In the PSU Bank index, the stock that got battered the most was Punjab National Bank which plunged 9.77 percent, followed by Bank of India which was down 7.8 percent, Oriental Bank of Commerce fell 7.73 percent, Allahabad Bank slipped 7.64 percent, Canara Bank was down 5.8 percent, and State Bank of India slipped 4.35 percent at the end of trade.

MKT CAP

The fall in PNB was further pushed after the bank said that it detected fraudulent transactions worth USD 1.77billion at a Mumbai branch. Allahabad Bank was also down after the company reported Q3 loss at Rs 1,264 crore while provisions spiked 169 percent.

The revised stressed asset framework would lead to accelerated and early recognition of NPAs in the banking system and would require higher provisioning expense, suggest experts.

“Evergreening of loans may no longer be an option with the requirement of weekly reporting in case of accounts above Rs500 crore. Existing SDR loans where the scheme is not yet implemented will fall into the default category and would thus require higher provisioning,” ICICIDirect said in a note.

“Overall, this framework is negative from a banking sector earnings perspective in the near to medium term (as provisions surge). Rise in bond yields along with higher provisioning will keep earnings muted, especially for PSU banks,” the note added.

The recently allocated capital should largely be consumed for the cleansing of balance sheets and growth capital remaining a constraint. However, in the long-run, it is a good structural change that can strengthen banking system in future.
First Published on Feb 14, 2018 04:37 pm
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