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Banking stocks fall as Moody's terms extension of timeline for Basel 3 norms 'credit negative'

While the BSE bankex ended 231.40 points or 0.78% lower at 29,372 level, bank Nifty fell 187 points to 26,113 points. 

twitter-logoBusinessToday.In | November 20, 2018 | Updated 17:20 IST
Banking stocks fall as Moody's terms extension of timeline for Basel 3 norms 'credit negative'

Public sector banks stocks closed lower in trade today amid the RBI board's decision to extend the timeline for banks to implement Basel 3 guidelines and absence of any major announcement on the easing of prompt corrective action (PCA) norms for these banks. The easing of PCA norms would enable banks to restart their lending operations for growth in various sectors of the economy ahead of elections in five states and a Lok Sabha election due next year.

While the BSE bankex ended 231.40 points or 0.78% lower at 29,372 level, bank Nifty fell 187 points to 26,113 points.

Punjab National Bank (2.86%), SBI (1.79%), Bank of Baroda (4.37%), IDBI Bank (0.74%), UCO Bank (3.02%), Bank of Maharashtra (4.26%), Dena Bank (3.22%) and Central Bank of India (2.23%) were the public sector lenders which closed lower in trade today.

Moody's said RBI board's decision to extend the timeline for banks to implement Basel 3 guidelines is "credit negative" for public sector lenders.

"While more details are awaited, this approach has the potential for negative implications for the credit profiles of Indian banks," Moody's Investors Service Vice President (Financial Institutions Group) Srikanth Vadlamani said in a statement.

The RBI board, while deciding to retain the capital adequacy requirement for banks at 9 per cent, agreed to extend the transition period for implementing the last tranche of 0.625 per cent under the capital conservation buffer (CCB), by one year - up to March 31, 2020.

CCB currently stands at 1.875 per cent and remaining 0.625 per cent was to be met by March 2019, as per the deadline fixed by the RBI.

"The decision to extend the timeline for the full implementation of Basel 3 guidelines by a year is a credit negative for Indian public sector banks," Vadlamani said.

Also, the decision to restructure stressed micro, small and medium enterprises (MSME) loans of up to Rs 25 crore also has the potential for having negative implications for the credit profiles of Indian banks, the US-based rating agency said which led to negative sentiments in banking stocks.

The absence of any major announcement on the easing of PCA norms led the banking stocks lower in trade today.

With respect to the PCA norms, the RBI in its board meet decided the matter would be examined by the Board for Financial Supervision (BFS) of the RBI.

Of the 21 state-owned banks, 11 are under the PCA framework, which imposes lending and other restrictions on weak lenders.

These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Dena Bank and Bank of Maharashtra.

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