India state-owned lenders slide as regulator mulls bigger loan provisions

Indian Renewable Energy Development Agency

06/05/2024 08:53

By Bharath Rajeswaran
       BENGALURU, May 6 (Reuters) - Shares of Indian
state-owned lenders slid 3.5% on Monday, set for their biggest
one-day drop in nearly two months, after the country's central
bank proposed lenders set aside more money to cover
under-construction infrastructure projects.
    The Nifty PSU bank index's  .NIFTYPSU  3.5% decline was the
most among the 13 major sectors. All 12 index constituents were
in the red, between Indian Bank's  INBA.NS  1.8% drop and Punjab
National Bank's  PNBK.NS  6.1% decrease.
    Shares of non-bank lenders were affected even more deeply,
with Power Finance Corp (PFC)  PWFC.NS , REC  RECM.NS  and IREDA
 INAR.NS  sliding between 4% and 8%. They are not on the PSU
index.
    The Reserve Bank of India, also the country's financial
regulator, issued draft guidelines on Friday proposing banks set
aside 5% of a sanctioned loan amount while the project is in
construction, taking into account a lender's experience of
financing such loans.
    "We believe the draft norms are punitive toward incremental
and existing project lending" and state-owned lenders will be
most exposed if the norms get implemented, Nomura analysts said
in a note.
    Macquarie analysts said the new provisioning requirements
apply retrospectively and not on incremental loans.
    "We think this will have two implications, where
provisioning requirements will go up for lenders, affecting
their profitability and these companies may ration credit to
project finance, further postponing the capex recovery," they
added.
    While the stocks of non-bank lenders fell more sharply than
those of banks, analysts said such companies would likely not be
as badly affected.
    "The impact on PFC and REC will only be on capital adequacy
ratios and not on their profits," CLSA said, adding that the
companies were well capitalised.

 (Reporting by Bharath Rajeswaran in Bengaluru; Editing by Savio
D'Souza)
 ((bharath.rajeswaran@thomsonreuters.com; +91 9769003463;))