PSU Banks lead pack of losers

Once again, it is the PSU banks which lead the pack of losers on the BSE. The PSU Index is down in the red and the top losers are PNB, Canara Bank, Bank of India, REC, Allahabad Bank, IOB, Bank of Baroda, Bank of Maharashtra, PFC…the list is endless.

The PSU banks have tanked after the RBI, in response to the Nirav Modi scam, decided to discontinue issuance of letters of undertaking (LoU) and letters of comfort (LoC) for trade credit for imports into India.

LoUs and LoCs are two of the instruments issued by Indian banks to domestic importers to get foreign exchange from banks abroad at a cheaper rate.

This is expected to push up the cost of imports by 50 bps and will put companies with long working capital cycles in a quandary.

This move will be welcomed by the foreign banks as finally, they will have a level playing field as domestic banks were pricing their instruments at much cheaper rates.