 "Is it time to consider PSU Banks?")
The Nifty PSU Bank index soared up to 2.6 per cent at 7,270 levels in Wednesday’s intraday trade. The upswing in the PSU Banks stocks came after two straight sessions of losses due to RBI’s new norms announced on May 3, 2024. In the preceding two sessions the index slipped 5.8 per cent to 7,085 levels.
The banking sector stocks fell as the Reserve Bank of India (RBI) proposed to tighten the project financing norms, which require lenders to set aside higher capital for doling out loans to under-construction projects.
On last Friday, the RBI issued a draft circular aimed at bolstering balance sheets through project financing. According to the proposed norms, lenders would need to provision up to 5 per cent of outstanding exposures for construction projects, decreasing to 2.5 per cent upon project completion and further to 1 per cent once 20 per cent of the loans are repaid with sufficient cash flow.
The circular encompassed both project and commercial real estate financing for all lenders and will apply immediately, covering existing outstanding exposures.
On Wednesday, however, the index recovered as stocks such as Indian Bank, PNB, Central Bank, and UCO Bank soared by 2.85 per cent, 1.64 per cent, 1.56 per cent and 1.53 per cent respectively in intraday deals. These stocks fell between 4-6 per cent post the announcement of new norms by the RBI.
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Others like Indian Overseas Bank, SBI, Maharashtra Bank and Bank of Baroda also surged by 1-1.5 per cent intraday on Wednesday.
On the RBI’s tightening of norms, analysts at Kotak Institutional Equities wrote that loan-loss provisions are at historical lows and building in provisions for creating buffers should not have an economic impact; hence, they do not see this as a negative outcome. Further, the share of infrastructure loans is low and capex recovery still does not look strong, analysts said.
At 03:06 PM; the Nifty PSU Bank index was up 0.82 per cent at 7,143 levels. By comparison, the Nifty 50 was trading range bound, down 0.07 per at 22,291.
