PSU banks trade weak after RBI's new NPA resolution

Nifty PSU Bank index, the largest loser among sectoral indices, was down 2% at 3,402, as compared to 0.5% decline each in Nifty Bank and Nifty Private Bank index at 09:47 AM.

Banking shares mainly public sector undertaking (PSU) banks trading weak with Nifty PSU Bank index falling 2% after the Reserve Bank of India (RBI) on Monday after market hours came out with a new non performing assets (NPA) resolution.

In the RBI’s new rules, banks would have to harmonise the treatment of specific accounts across their books. If one bank has treated a particular account as an NPA, other lenders on the same account will have to treat it as an NPA in their books as well.CLICK HERE TO READ FULL REPORT

At 09:47 am; the Nifty PSU Bank index, the largest loser among sectoral indices, was down 2% at 3,402, as compared to 0.5% decline each in Nifty Bank and Nifty Private Bank index, while the benchmark Nifty 50 index was trading flat at 10,543.

Among the individual stocks, Bank of India and Punjab National Bank were down 4%, IDBI Bank, Syndicate Bank, Allahabad Bank, Union Bank of India and Oriental Bank of Commerce down 2% on the National Stock Exchange (NSE). State Bank of India was down 1%, while Bank of Baroda trading a marginal 0.2% higher at Rs 169.

According to Icra, the revised framework on resolution of stressed assets issued by RBI is likely to increase the reported NPA levels of the banks in coming quarters. This is likely to be an outcome of implementation of resolution plan for large borrowers that are currently under Special Mention Accounts (SMA) categories.

Further, in the event, the banks are unable to implement a resolution plans for the large borrowers with exposure of Rs 20 billion and above, these accounts will required to referred to National Company Law Tribunal for resolution under Insolvency and Bankruptcy Code (IBC), 2016. This has been the case with most of the NCLT 2 list of borrowers, whereby the resolution plans failed for most of borrowers and were referred under IBC; this is expected to further spike up the credit provisioning requirements for banks during FY2019, Icra said in a press release.

“While in the short-term this will increase the pain for the borrowers as well the lenders, however the early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in long-term” said Karthik Srinivasan, Group Head, Financial Sector Ratings, Icra.

COMPANY	LATEST	PREV CLOSE	LOSS(%)
BANK OF INDIA	138.40	144.85	-4.45
PUNJAB NATL.BANK	154.85	161.65	-4.21
CORPORATION BANK	34.80	36.25	-4.00
IDBI BANK	65.55	67.60	-3.03
SYNDICATE BANK	63.85	65.75	-2.89
ALLAHABAD BANK	59.30	61.00	-2.79
ORIENTAL BANK	109.40	112.35	-2.63
ANDHRA BANK	47.50	48.75	-2.56
UNION BANK (I)	124.50	127.50	-2.35
CANARA BANK	320.65	327.95	-2.23
DENA BANK	22.50	22.90	-1.75
ST BK OF INDIA	283.55	288.50	-1.72
VIJAYA BANK	60.40	61.25	-1.39
I O B	21.55	21.85	-1.37