RBI Relaxes Provisioning Norms: Bank Stock Rise

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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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