At 2:17 pm; Nifty PSU Bank index, the largest loser among sectoral indices was down 4.1% at 3,302, as compared to 1% decline in the benchmark Nifty 50 index. Nifty Bank and Nifty Private Bank index down 2% each.
Nifty PSU Bank index tanked 16% from its 52-week high of 3,921 touched on May 5, 2017 in intra-day trade against 2% rise in the benchmark index.
The government on May 5 notified the Banking Regulation (Amendment) Ordinance 2017, kick-starting a new framework to deal with Rs 6 lakh crore worth of non-performing assets (NPAs) in the Indian banking system.
The RBI recently referred 12 large NPAs in the banking system for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), based on the recommendations of its internal advisory committee (IAC).
CRISIL’s study show that banks have already provisioned around 40% for these NPAs worth around Rs 2 lakh crore, or equal to a quarter of the NPAs in the banking system, before the RBI’s move.
Krishnan Sitaraman, Senior Director, CRISIL Ratings said, “Based on CRISIL’s assessment of embedded value in the top 50 NPA cases, we estimate a 60% haircut would be needed on these loan assets. That would mean banks will have to increase provisioning by another around 25% this fiscal, compared with 9% in the last.”
"But the impact of that could be mitigated if banks are allowed to amortise the provisioning across 6 to 8 quarters," added CRISIL in a press release.
Rama Patel, Director, CRISIL Ratings said, “While the IBC route could entail a substantial markdown of loan assets by banks, the ability, especially of public sector banks, to absorb such losses and the consequent impact on their capital position will need to be monitored closely in the road ahead.”