Banking Stocks Rally As RBI Offers Relief On Stressed Assets

Business

oi-Sunil

By Sunil Fernandes

Published: Tuesday, June 14, 2016, 11:06 [IST]

Banking stocks gained ground in trade as the Reserve Bank of India offered some relief to banks, saddled with bad loans.

The high beta PSU banking stocks rallied with Punjab National Bank jumping a huge 4 per cent, while other notable gainers were Oriental Bank, which rallied 3 per cent and State Bank of India and Canara Bank, which rallied 2 per cent each.

On Monday, the country's central bank stated that banks would be allowed to convert half their loans up to half the loans held by corporate borrowers into equity or equity-like securities.

"The Reserve Bank, after due consultation with lenders, has formulated the 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) as an optional framework for the resolution of large stressed accounts. The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around," the RBI said in a statement.

In order to make sure that that the entire exercise is carried out in a transparent and prudent manner, S4A envisages that the resolution plan will be prepared by credible professional agencies, while an Overseeing Committee, set up by the Indian Banks Association, in consultation with the RBI, comprising of eminent experts will independently review the processes involved in preparation of the resolution plan, under the S4A, for reasonableness and adherence to the provisions of these guidelines, and opine on it.

The move by the RBI may not be a really big initiative to bring down NPAs, but, it could provide some relief to the government owned banks saddled with NPAs.

Most analysts believe that NPAs for the time being may have peaked and at some stage there could be a recovery in non performing assets.

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