PSU bank shares take a hit due to draft RBI norms on project finance

PSU Bank nifty scale fell 3.66% to adjacent astatine 7,252.85 successful commercialized connected Monday.

On 3 May, RBI issued a draught prudential model for lenders undertaking task finance, which projected an summation successful modular plus provisioning to 1-5% of loans from the existent 0.4% successful a phased mode connected task loans that are not overdue to stressed.

When a task is successful the operation phase, lenders indispensable acceptable speech a proviso of 5% of the indebtedness amount, according to the draught rules. This volition trim to 2.5% erstwhile a task is operational and further to 1% erstwhile the task has capable currency travel to repay obligations.

RBI has allowed lenders 3 years to scope 5% provisioning—2% successful FY25, 3.5% successful FY26 and 5% by FY27.

The draught rules besides accidental that banks should person a wide viability connected the day connected which a task is expected to statesman commercialized operations and summation provisions successful lawsuit operations are delayed. Any hold implicit 3 years successful opening an infrastructure task should alteration the classification of indebtedness from modular to stressed.

RBI criteria

RBI has besides laid down different criteria specified arsenic idiosyncratic lenders successful the consortium for projects with aggregate vulnerability upto ₹1,500 crore shall not person little than 10% exposure, and those lenders with higher aggregate vulnerability should person idiosyncratic vulnerability of 5% oregon ₹150 crore, whichever is higher. The rules besides marque it mandatory for banks to guarantee fiscal closure is achieved and day of commencement of commercialized operations (DCCO) is documented anterior to money disbursement.

The draught guidelines are meant to safeguard the risks progressive successful task lending and to marque higher prudential provisions, according to analysts. Suresh Ganapathy, banking expert astatine Macquarie Capital believes that these rules volition deed nationalist assemblage banks much than backstage assemblage owing to their accrued exposure.

"From fiscal companies' perspective, we deliberation this volition person 2 implications: 1) provisioning requirements volition spell up for lenders affecting their profitability; and 2) these companies whitethorn ration recognition to task finance, beryllium much selective, and/or rise lending rates, further postponing the capex rhythm recovery," helium said.

Analysts astatine IIFL Securities estimation that the interaction of 5% modular plus provisioning volition effect successful banks making further proviso of 0.5-35 of networth and a deed of 7-30 ground points connected communal equity tier 1 capital. Infrastructure focused NBFCs similar REC, PFC and Ireda tin spot imaginable deed of 200-300bps to their superior ratio, they said.

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Published: 06 May 2024, 08:10 PM IST