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More headroom for banks, but investors unimpressed

TNN | Updated: Nov 21, 2018, 10:19 IST2 Comments

Highlights

MUMBAI: Shares of most public sector banks (PSBs) closed in the red on Monday despite an announcement by the Reserve Bank of India (RBI) that itwill give them more time to raise capital to meet international norms. The RBI board also decided to grant relief to small businesses — a move that couldresult in lenders not having to classify stressed loans in this sector as non-performing. Allahabad Bank was the only PSU lender to see its shares gain,while its peers lost between 2% and 5% on Tuesday.

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“This will provide some breathing space to capital-starved PSBs,” said Crisil Ratings senior director Krishnan Sitaraman. “As per our earlier estimates,they needed around Rs 1.2 lakh crore over the next five months up to March 2019 to meet tier-1 capital stipulated under Basel III norms. Now they wouldneed only around Rs 85,000 crore.”

While the RBI decision gives banks more headroom to lend, it may not inspire confidence among investors. “Just because RBI gives some regulatoryforbearance for classification of SME non-performing loans or temporarily relaxes capital requirements, will credit rating agencies and equity investors

The RBI board also decided to grant relief to small businesses — a move that could result in lenders not having to classify stressed loans in thissector as non-performingAllahabad Bank was the only PSU lender to see its shares gain, while its peers lost between 2% and 5% on Tuesday


4 of 18 11/22/2018, 12:35 PM

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start looking at them differently? When world over investors demand banks to have at least 9-10% of common equity tier-1 capital, how does it changethe prospects for the bank trying to raise capital — equity or debt?” said Macquarie Capital Securities research analyst Suresh Ganapathy. He added thathe was “dead against” any regulatory forbearance or relaxation of capital requirements.

Latest CommentBetter late than never. Its unfortunate that the RBI had tough stand on this vital issue.All that ends in good spirit needs to be appreciated.Rajnikant Diwan

Care chief economist Madan Sabnavis said that, while the surplus reserves will presumably be used for the welfare of people, the argument on the otherside is that these reserves are notional and required for contingencies. “The committee will have to decide on how much of such reserves will have to bemaintained and the purposes for which they should be used. Also, the effect on forex reserves and money in circulation will have to be worked out,” hesaid. On the proposed forbearance for stressed MSME loans, Sabnavis said that, while this will be a positive for small businesses that are facingchallenges, the RBI will have to come out with guidelines to ensure that banks do this in a prudent manner. “The restructuring exercise for large loans inthe past had led to the creation of the NPA pile, which is still to be resolved. Therefore, this exercise should be undertaken with the necessarysafeguards,” he said.

According to Bank of America Merrill Lynch economist Indranil Sen Gupta, the move by the RBI board to support SME credit, delay 9% capitaladequacy ratio requirement by a year and dilute the PCA framework is a welcome one. “For these measures to work, we continue to expect the RBI tostep up open market operations (OMO) to Rs 50,000 crore a month in December-March to arrest lending rate hikes,” said Sen Gupta in a report. DBSBank economist Radhika Rao said that the compromise between the centre and the RBI is positive for the rupee markets. “Easing tensions between theRBI and the government is likely to be positive for Indian rupee assets, particularly as the central bank is seen to retain its operational autonomy,” shesaid.

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Member 1Know more about Times PointsRajnikant Diwan - SURAT-GUJARAT - 21 hours ago -FollowBetter late than never. Its unfortunate that the RBI had tough stand on this vital issue.All that ends in good spirit needs to be appreciated.Reply • • 0 0 • Flag

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Member 1Know more about Times PointsGodfather Senior - Mumbai - 1 day ago -FollowHad the RBI acted quickly and without waiting for appointing for a committee and taking a month to do so, the markets and banking industry would havebeen in a confident position to the way of recovery. Politics played by the vested interests in the RBI committee and going for a presser without checkingthe facts by the RBI Dy. Governor made all the worse. It is time to sack all the past directors appointed by the congress stooge cheatambaram and toreplace with some honest and impartial persons ... Read MoreReply • • 0 1 • Flag

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Rajnikant DiwanBetter late than never. Its unfortunate that the RBI had tough stand on this vital issue.All that ends in good spirit needs to be appreciated.Reply

Godfather SeniorHad the RBI acted quickly and without waiting for appointing for a committee and taking a month to do so, the markets and banking industry would have...Reply

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more headroom for banks, but investors unimpressed - times ......fir filed against alok nath; richa...

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