RBI Relaxes Provisioning Norms: Bank Stock Rise

By Olga Robert
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    The Reserve Bank of India (RBI) in a circular issued to banks on Wednesday, informed that the provisions for accounts referred to National Company Law Tribunal (NCLT) were reduced to 40% of dues of secured loans at the end of March from the earlier 50%. This is a relief for lenders with loan defaulters as it will help these banks strengthen their financial results for the quarter ended March.

    RBI Relaxes Provisioning Norms: Bank Stock Rise

    However, according to an Economic Times report, this provision is temporary and will go back to 50% for the June quarter. There is no change in provision for unsecured loans. A provision is a back up facility were a bank sets aside some money from its gross profit in order to protect itself, incase a borrower fails to repay the loan. This provision is set by the RBI.

    By reducing the provision, banks can not redirect the funds in other capital requirements.

    As a result of this relief, bank stocks experienced a positive boost during the market opening. The Nifty Bank Index was up by 1.12% at 24,000 around 9:45 am as all its component stocks were green.

    Bank of Baroda was up by 1.93%, Yes Bank was up by 1.74%, IDFC Bank was up by 1.66% and Induslnd Bank by almost 2%.

    The other gainers were:

    • Kotak Mahindra Bank + 1.52%
    • Federal Bank +1.48%
    • State Bank of India +1.29%
    • Punjab National Bank +1.17%
    • RBL Bank +1.09%
    • HDFC Bank +1%
    • Axis Bank +0.82%
    • ICICI Bank +0.63%

    RBI's decision, backed by reduced tensions around trade war and the positive opening of Asian stock markets benefited the stock markets here in India.

    Read more about: rbi bank nifty
    Story first published: Thursday, April 5, 2018, 10:31 [IST]
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