​​​
  1. NPA norm revision: Banking stocks take a knocking

NPA norm revision: Banking stocks take a knocking

Sell-off after RBI move to revamp NPA rules; analysts see a hit in the fourth quarter.

By: | Mumbai | Published: February 15, 2018 6:17 AM
NPA norm revision, rbi, central bank, sensex, stocks The RBI directed banks to share information on all defaulting borrowers with an exposure of over Rs 5 crore with the central bank on every Friday. Indian banks are sitting on a stressed assets pool of over Rs 10 lakh crore.

The Reserve Bank of India’s (RBI) move to revise non-performing asset norms on Monday night triggered a sell-off in banking stocks on Wednesday. The Nifty Bank index, a barometer for bank stocks, declined 1.40% to 25,341.25 points, three times more than the market benchmark index. The Sensex slipped 0.42% to 34,155.95 points. The Nifty PSU Bank index, which tracks public sector bank stocks, saw an even sharper decline of 4.78% to 3,307.05.

The sell-off in banking stocks follows the RBI’s move to revamp non-performing asset (NPA) recognition norms and dismantle the earlier regime of multiple restructuring options, by putting in place a clear, but tougher, roadmap for recognition and resolution of NPAs. The RBI also directed banks to share information on all defaulting borrowers with an exposure of over Rs 5 crore with the central bank on every Friday. Indian banks are sitting on a stressed assets pool of over Rs 10 lakh crore.

In a note to investors, Morgan Stanley said the new restructuring scheme is relatively stricter and will ensure a relatively lower delay in right-sizing of provisioning by banks on stressed accounts.“Consequently, this could imply higher slippages and provisioning for F18/F19e — the new scheme is applicable for existing stressed accounts under resolution as well and will warrant higher provisioning if not resolved as they move to the IBC,” the note added.

“It will lead to an acceleration in provisioning, and it will hurt near-term earnings. But it is also a good thing from a longer-term perspective because it accelerates the clean-up. There are some banks which have been slow in recognising distressed assets, there will be a more negative surprise for them,” said Gautam Chhaochharia, head of India research, UBS. Regarding the outlook for banking stocks, he said, “The fourth-quarter numbers of PSU banks will be impacted by provisioning. We are positive on corporate lenders, we are neutral on PSU banks, and we like select private banks.”

Kotak Institutional Equities in its note said the timing of the guideline suggests that the RBI is probably not too happy at the pace of resolution of NPAs, despite the availability of a wide range of tools with bankers through SDR, S4A, flexible restructuring and joint lenders forum.

The scrip of State Bank of India, which reported a standalone net loss of Rs 2,416 crore for the quarter ended December 2018, fell 4.59% and ended the session at Rs 275.50. The share has declined by 8.4% over the past three sessions, and fallen 11% since the beginning of 2018. Bank of Baroda, which registered a decline of 56% in its net profit to Rs 112 crore in the December quarter, dropped 2.82% and ended the session at Rs 163.90. Indian Overseas Bank, which posted a net loss of Rs 971.17 crore in the December quarter on Tuesday, fell 1.61% and ended at Rs 21.45.
The largest private sector lenders, ICICI Bank and HDFC Bank, were a mixed bag. While HDFC Bank ended the session with a gain of 0.42% at Rs 1884.35, the ICICI Bank stock closed 2.29% down at Rs 318.55.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

  1. No Comments.

Go to Top