MARKETS TANK BUT DOES NOT CRASH
![No Image](https://images.sptulsian.com/articles/MARKETS-TANK-BUT-DOES-NOT-CRASH.jpg)
By Ruma Dubey
On 16th of June, RBI was responsible for the markets hitting new highs with its move on NPA resolution; today once again the markets danced to the tune of RBI though this time, southwards.
The market, fresh and optimistic after a long weekend, opened will all vigor and remained over 150 points, at least till afternoon session. Then the RBI announced its diktat on provisioning rules for banks and the market just tanked. Thankfully, it was sane enough to not exactly crash but it gave up its “thumbs-up” mood which it had at the beginning of the day.
This is based on a report that the RBI has demanded higher provisioning for loans submitted under the insolvency process. And those in the know say that this will work out to banks needing to set aside 50% as provision against the secured portion of insolvent loans and it will be 100% where the loan is unsecured. The additional provisions are to be spread over three quarters starting from current fiscal’s Q2.
This has turned the taste very sour and bitter for PSU Banks, which last week were on an upward rally. The NSE Nifty PSU bank index was down 4% and top losers included PNB, Syndicate Bank, Canara Bank, BoB, BoM, BoI, Oriental Bank, Andhra Bank, SBI, Union Bank, Allahabad Bank.
There are various bankers who say that this move could lead to provisioning going up by over 25% in current fiscal v/s 9% last fiscal and many banks are expected to take a 60% haircut for NPA resolution in the top 50 NPA cases across all banks. Credit Suisse estimate Rs.40,000 crore of additional provisions in this financial year.
There are two ways to look at this – either moan and cry over banks margins taking a hit as credit costs soar. Or you can feel happy that we could probably be seeing the end of this NPA disease in current fiscal; next fiscal banks will look leaner, more consolidated and ready for business. Currently, any PSU employees, off-the-record, say that banks are simply not lending to companies, making the process extremely tedious. Banks now feel safer lending money to individuals for home and other loans. Thus once all NPAs get out in the open and cleaned up, only then will banks be able to move ahead. This cutting off of the sick part is essential for survival.
Yes, it will hurt this entire fiscal but we are paying the price for what we enjoyed in the past. Maybe this is a better way for the banks to be prepared for the new IND-AS accounting standards due to be implemented from April 1, 2018.
We just wish the banks, especially PSU banks are henceforth given more autonomy and they have the freedom to lend the way in which private sector banks do. Only if the business of babudom stops, can PSU banks be assured that this will not get repeated in the future. Or else it will be just one problem to another while we all keep suffering through the way.
Meanwhile, the next four days will be all about getting prepared for the GST and then getting adjusted to the new tax regime.
29th Jun 2017 at 08:02 pm
28th Jun 2017 at 07:42 pm
27th Jun 2017 at 08:06 pm
27th Jun 2017 at 06:40 pm
27th Jun 2017 at 06:24 pm
27th Jun 2017 at 06:17 pm
27th Jun 2017 at 05:45 pm