Worries build up over RBI strictures on infra financing
state-owned banks, non-banking finance companies (NBFCs) and infrastructure firms plunged as much as 10% on Monday following the Reserve Bank of India's tougher draft guidelines on the financing and accounting of project loans.
The proposed stricter lending criteria, with additional provisioning, are aimed at preventing accounting shocks but could potentially hurt balance sheets of these entities and exert pressure on their valuation multiples, analysts and economists said.
The Nifty PSU Bank index fell 3.66%, while the Nifty PSE index dropped 2.79% and the BSE Infrastructure index declined 2.28%. Investors saw a staggering erosion of ₹1.83 lakh crore in wealth from public sector stocks on Monday.
While the planned measures are prudent from a risk-management perspective — stemming from the regulator's experience in the previous credit cycle — analysts said they could be detrimental to growth in the capital-intensive infrastructure sector.
«We believe this is a significant increase in provisioning requirements,» said Sameer Bhise, analyst at JM Financial Services.
Incremental Credit Costs
"(It) will result in lower returns for lenders in project finance and reduce incremental appetite for such exposures if implemented in current form," said Bhise of JM Financial.
On Friday, the Reserve Bank of India (RBI) proposed that lenders increase provisions for under-construction infrastructure projects and enforce rigorous monitoring of emerging stress.
The central bank aims to increase standard asset provisioning to
