RBI New Loan Rules

Shares of public sector banks like State Bank of India, Punjab National Bank, Canara Bank, Union Bank of India, Maharashtra Bank and Bank of Baroda fell up to 6% on Monday. The decline was seen after the Reserve Bank of India (RBI) released a draft of strict rules for financing infrastructure projects and strict monitoring of under-construction projects.

Nifty PSU Bank index fell by 5% in today's trade. The biggest fall in the PSU bank index was seen in shares of Punjab National Bank, Canara Bank, Union Bank, Bank of Baroda and Bank of India, which were down more than 3%.

What is RBI's proposal?

The central bank's draft rules include classifying projects according to their stage and higher provisioning of up to 5% during the construction phase, even if the property is in the standard category. This is much higher than the existing provision of 0.4%.

long term dues

Once the project reaches the 'operational stage', the provisions can be reduced to 2.5% of the outstanding amount financed and then further reduced to 1% subject to fulfillment of certain conditions. These conditions include positive net operating cash flow of the project sufficient to meet the current repayment obligation to all lenders and a reduction of approximately 20% of the total long term outstanding of the project.

RBI guidelines will also apply to non-bank lenders

RBI has said that these guidelines will be applicable to both banks and non-bank lenders. The impact of the new RBI guidelines was also seen on NBFCs like PFC, REC and IREDA, whose shares have declined. IIFL Securities estimates that there will be no impact on returns on equity of non-bank lenders like REC, PFC and IREDA, but their Tier-1 ratios are expected to decline by 200 basis points to 300 basis points and also Their valuation multiples could also potentially be weighed down.