REC, PFC to see minimal impact from RBI draft norms, says CLSA; stocks make mild recovery

Stocks for PFC have gained around 225 percent over the last one year, while REC has gained around 286 percent.

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Stocks of REC, PFC recovered at mid-day on May 6, after brokerage firm CLSA said that the impact of RBI's proposal on provisions would have minimal impact on the company's profit and loss.

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REC stock opened at Rs 530 on the NSE, before falling by around 10 percent to Rs 502 during early trade on May 6. The stock has since seen some recovery and is now trading at Rs 517.70, around 7 percent lower. Similarly, PFC shares opened at Rs 454.85 apiece, before falling by around 12 percent to Rs 422.55 during early trade. The stock is now trading at Rs 439, around 8 percent lower.

Also read: REC gets RBI nod to set up subsidiary in GIFT City

According to CLSA analysts, PFC and REC will see limited impact from the regulation, if it comes into play, impacting possibly only capital adequacy ratios. The RBI draft guideline proposes to increase standard asset provisions to 5 percent over next three years and sets the minimum exposure of lenders in a consortium at 5 percent with restrictions on selling exposure till a project becomes operational.

According to the brokerage's report, NBFCs follow IndAs accounting (Indian Accounting Standard), which is different from that of banks.  Higher provisions, , CLSA said, will only impact PFC's and REC's impairment reserves and will not drag down their profits as both companies are well-capitalised.  RBI has sought feedback on  the proposal by June 2024.

PFC shares have gained around 225 percent over the last one year, while those of REC have gained around 286 percent.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.