PSU Banks, select infra shares gain as RBI revises debt restructuring rules

Punjab National Bank, Oriental Bank, Union Bank, Bank of India, and SBI were up more than 2% on the NSE.

Shares of public sector undertaking (PSU) banks and the debt-ridden companies were trading higher in otherwise subdued market after the Reserve Bank of India (RBI) allowed banks to conduct deep restructuring of large accounts to revive projects that can be saved.

Most of the beaten down infrastructure and metal companies such as Bhushan Steel (up 14% at Rs 42), Jaiprakash Associates (12% at Rs 7.63), Unitech (7% at Rs 5.10), Jaiprakash Power Ventures (7% at Rs 5.04), GVK Power & Infrastructure (6% at Rs 5.95), Jaypee Infratech (5% at Rs 7.97) and Jindal Steel & Power (5% at Rs 65) were up more than 4% each.

Punjab National Bank (up 4% at Rs 86.55), Oriental Bank of Commerce (3% at Rs 92.25), Union Bank of India (3% at Rs 122), Bank of India (3% at Rs 89.50), State Bank of India (2% at Rs 206) and Indian Overseas Bank (2% at Rs 26.35) were up over 2% each on the National Stock Exchange (NSE).

At 11:15 AM, Nifty PSU Bank index was up 2% and Nifty Realty index up 1.5%, as compared to 0.13% decline in Nifty 50 index.

The RBI on Monday announced a scheme for sustainable restructuring of large stressed assets, a move that aims not only to strengthen lenders’ ability to deal with stress assets, but also to put real assets (facing genuine problems) back on track. Key steps include, right sizing debt into sustainable and non-sustainable categories; keeping promoters skin in the game, which will help protect value of assets; and setting up of an Overseeing Committee (OC) to ensure time-bound resolution.

According to Edelweiss Securities, the framework seems to be more practical as it is principal-based rather than rule-based provisioning approach. The current move by RBI to facilitate resolution of large stress assets will give projects a chance of sustained revival and in turn curtail bank losses.

"We see sectors such as power and iron & steel to benefit from this which will in turn aids banks. However, we maintain challenges will persist on operational front for mid-size PSU banks as their competitive prowess will be severely hit given diversion towards clean up coupled with capital constraints on growth, and thus maintain cautious stance on them," the brokerage firm said in a note.