Banking stocks take a hit on provisioning worries

The Reserve Bank of India’s (RBI’s) mandate instructing banks to make higher provisions for accounts referred to the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code (IBC) came as a jolt for banking stocks on Tuesday. While the overall trading condition was also weak, the news was particularly negative for public sector banks (PSBs). Syndicate Bank, Punjab National Bank, Canara Bank and Andhra Bank took 4-5 per cent hits in their stock prices, while that of State Bank of India, Bank of Baroda, and Union Bank corrected by 2.8-3.7 per cent on Tuesday. Even private banks with relatively high corporate exposure, such as ICICI Bank and Axis Bank, saw their share price fall 1.2 per cent and 2.3 per cent, respectively. According to the RBI’s latest directive, banks have to provide 50 per cent for secured loans and 100 per cent for unsecured loans referred to the NCLT, clearly suggesting that provisioning towards bad loans may remain elevated for corporate banks and PSBs in FY18. Given that the Street was expecting moderation in loan loss provisioning in FY18 going by the trend in FY17, the RBI’s latest mandate is clearly negative. Commodity Trading Tips