SBI, Bank of Baroda Share Prices Rally After RBI Eases Bankruptcy Provision Needs

NDTV Profit Team

05 Apr 2018, 12:41 PM IST

Besides SBI and BoB, Bank of India, Allahabad Bank and Canara Bank were among top gainers.

State-run bank shares, including that of SBI and Bank of Baroda, rallied today after the Reserve Bank of India (RBI) lowered the amount the lenders needed to set aside as of end-March for their loans to nearly 40 companies that are undergoing bankruptcy resolution proceedings. SBI shares were up over 2 per cent at Rs 252.50 in noon trade while Bank of Baroda shares rallied 2.5 per cent to Rs 143.40. Bank of India, Allahabad Bank, Canara Bank, Syndicate Bank and Punjab National Bank were up between 2 per cent and 3 per cent.

The Nifty PSU Bank index was up over 2 per cent as compared to 1.3 per cent gain in broader Sensex.

The RBI has allowed banks to have a minimum provisioning cover of 40 per cent on secured loans to those companies, lower than the minimum 50 per cent it had earlier wanted them to set aside for those loans, according to bankers and a letter seen by Reuters. The banks will need to achieve 50 per cent provision cover for those loans by end-June, said the bankers and the letter.

Earlier this month, the RBI allowed banks to spread their bond trading losses, a change that is likely to boost profitability of lender. This had triggered a rally in banking stocks. Under the change, lenders can spread bond-trading losses incurred in the December 2017 and March 2018 quarters equally over up to four quarters. This will come as a major reprieve to India's state-run banks, which have been hard hit by trading losses from a spike in bond yields over recent months.

The RBI moves comes at a time when banks already battling near-record levels of soured loans are staring at an increase in stressed assets after a rule change announced in February.

The financial sector has also been stunned by a massive $2 billion fraud in state-run Punjab National Bank that has implications on several other lenders.

PNB has agreed to pay the counterparty banks for any loss from the fraud. The RBI previously gave a go-ahead to PNB to spread the provisions for the fraud-related losses over four quarters, banking sources have said.

Sentiment was also positive ahead of the RBI's monetary policy announcement due later in the day with traders expecting the central bank to sound less hawkish, thereby pushing back rate hike fears.(With Agency Inputs)