Moneycontrol
Feb 14, 2018 09:47 AM IST | Source: Moneycontrol.com

Bank of Baroda, SBI, Syndicate Bank under pressure post revision in NPA rule

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.

 
 
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Banking stocks came under pressure in morning trade on Wednesday 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.

Reacting to the news, public sector banks got hammered the most in morning trade. The Nifty PSU Bank index slipped 1.1 percent 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, Punjab National Bank slipped 3.5 percent, followed by Bank of Baroda which was down 3.6 percent, State Bank of India slipped 1.1 percent, IDBI Bank was down 1.4 percent, and Syndicate Bank slipped 1.14 percent so far in the trade today.

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.
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