RBI norms may put a Rs 35,000 crore hole in banks’ profits

RBI norms may put a Rs 35,000 crore hole in banks’ profits thumbnail
NewsStock Analysis, IPO, Mutual Funds, Bonds & MoreThe rating agency has said that these new norms could severely pinch banking sector.Last Updated: Apr 17, 2020, 09.43 PM ISTKeeping in mind the risk build-up in bank balance sheets due to stress and delays in recoveries, the regulator has asked banks to make a higher provision of…

NewsStock Analysis, IPO, Mutual Funds, Bonds & MoreThe rating agency has said that these new norms could severely pinch banking sector.Last Updated: Apr 17, 2020, 09.43 PM ISTKeeping in mind the risk build-up in bank balance sheets due to stress and delays in recoveries, the regulator has asked banks to make a higher provision of 10 per cent on all standstill accounts.Mumbai: The Reserve Bank of India’s mandate to set aside 10 per cent provisioning on standstill accounts could hit bank books by as much as Rs 35,000 crore estimates Brickwork Ratings.
The rating agency has said that these new norms could severely pinch banking sector profitability for fiscals 2020 and 2021 and flagged that banks ability to manage asset quality in the near term post the moratorium period remains a critical monitorable.
Keeping in mind the risk build-up in bank balance sheets due to stress and delays in recoveries, the regulator has asked banks to make a higher provision of 10 per cent on all standstill accounts. The provision will be spread across the March and June quarters and can be later adjusted against the provisioning requirements for actual slippages.
“As per our estimates, the RBI’s stipulation on additional provisioning requirements could increase the total provisioning of banks by ~ Rs 35,000 crore in the March – June 2020 period,” said Vydianathan Ramaswamy, Director, Brickwork Ratings. ”Such a large hit on profitability will also impair the capital positions of banks.“
This new provisioning rules could especially hit public sector banks many of which continued to report losses for 9 months ending 31 December, 2019 and may necessitate further capital infusion by the government into weak PSBs.
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