PSU Stocks tumbled amid RBI draft circular on lenders
The Reserve Bank of India (RBI) has proposed stricter regulations on lending to projects that are currently being implemented.
![PSU Stocks tumbled amid RBI draft circular on lenders](https://www.psuconnect.in/sdsdsd/stock3.jpg)
On Monday, shares of public sector undertaking (PSU) stocks from various sectors were significantly affected by selling pressure. State-run companies like Power Finance Corporation (PFC), REC Ltd, Bharat Heavy Electrical Ltd (BHEL), Bharat Dynamics Ltd, RVNL, Ircon and Mazagon Dock Shipbuilders witnessed a decline of up to 12% due to the RBI's notice.
The RBI has suggested the establishment of a minimum limit for banks' loan exposure to project finance when it comes to consortium lending, and has mandated that 5% of the assets be in the standard construction phase.
Read Also : R.K. Chaudhary, CMD, NHPC met Chowna Mein, Hon’ble Dy. CM, Arunachal PradeshWith these guidelines, the RBI has significantly enhanced the provisioning requirement during the construction phase of a project from the extant 0.4 to 5.0 per cent, for all existing and fresh exposures. No change has been proposed in the provisioning requirement for NPAs, said JM Financial in its note.
"We believe this is a significant increase in provisioning requirement and will result in lower returns for lenders in project finance and reduce incremental appetite for such exposures, if implemented in current form. While this is prudent from a risk management perspective, coming from the regulator’s experience in the last credit cycle, we believe this can be detrimental to growth in the capital-intensive infrastructure sectors in the economy, it added.
Read Also : State Coal Minister inaugurates new solar plant at CCL’s Piparwar AreaOn Monday, PFC shares took a dip of more than 12.40 per cent and closed at Rs 420.85. REC shares also saw a decline of more than 10.80 per cent and closed at Rs 497.40 for the day. BHEL shares tumbled more than 7.88 per cent and closed at Rs 281.05, while MOIL shares were down 6.35 per cent and closed at Rs 418 for the day. Mazagon Dock shares also saw a decline of more than 4 per cent and closed at Rs 2265.
The Nifty PSU Bank index witnessed a significant drop of around 5% during intra-day trading. Canara Bank and Punjab National Bank (PNB) were the worst hit among the index constituents, with a decline of more than 6% each. Union Bank of India and Bank of Baroda also experienced a dip of 4% each. In addition, shares of State Bank of India (SBI), UCO Bank and Bank of India tumbled by 3% each during the day.
In the railway industry, RailTel Corporation of India witnessed a decline of over 5.1%, and its stocks are now trading at Rs 374.30. Similarly, Rail Vikas Nigam Ltd (RVNL) experienced a drop of 4.6% and is currently trading at 270.90. Indian Railway Finance Corporation Ltd (IRFC) and Ircon International both observed a decline of 3%, with their stocks now trading at Rs 151.55 and Rs 243, respectively..
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