The Nifty PSU Bank index moved by 2.5% after social media highlighted the expectations from the lenders to oppose RBI’s norms. We will share details about the RBI’s proposed norms on Infra Project Financing and what decision lenders took upon that. Reserve Bank Of India decides to tighten the rules for Infrastructure financing. Thus, all the bank’s shares are plunged. There is fast movement on the charts showing a lot of fluctuations. Power Finance Corporation Shares moved up today by 4.61%.
Nifty PSU Bank Index is moved by 2.5%. Reserve Bank Of India introduced some changes in the infrastructure financing and the percentage of provision kept by these lenders impacting several things in their capex cycle. RbI took the steps under which the lenders lending for the construction projects now have to keep higher capital and provisions of outstanding exposures under construction projects.
As per the recent circular, lenders now have to keep provisions up to 5% of the outstanding exposure under construction projects. It will keep on reducing as the project moves to further stages. As the asset becomes operational, the provisions will be up to 2.5%. After the lender recovers 20% of the loan’s amount, they can reduce the provision to 1%.
It will impact the different aspects of working in such institutions in the long run. The lenders will further limit such loans. As they have to maintain a higher provision, their profit will reduce. It will lead to the lenders approving less of such loans. The RBI’s norms are covering different sectors. Infrastructure financing is having an impact already. Apart from that, it will also cover commercial real estate financing.
If the lenders are more subjective in lending such loans, it can impact the construction projects as well. RBI will be working on restructuring the infrastructure financing. Thus, there is a need to make some changes. To conclude, the RBI is making changes in the infrastructure financing. There will be more provisions up to 5% of the outstanding exposures under construction projects. It will further reduce to 2.5% after assets are operational and 1% after receiving 20% of the loan amount back.
It will create more impact on the lenders. Maintaining the higher provisions has been a question of the profitability of the lenders. However, the analysts expect that it will be covered over some time. We hope you get enough details about RBI Provisioning norms and their impact on the PSU banks. Stay tuned for more information.