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Bad loan norms from RBI give PSU bank stocks a big lift

IDBI, Canara Bank, BOB and IOB were other stocks that gained in excess of 1% in the first hour of trade

Policy Pulse
Publish Date: Jun 14 2016 2:18PM | Updated Date: Jun 14 2016 2:21PM

Bad loan norms from RBI give PSU bank stocks a big lift
Stocks of PSU banks rallied as much as 3 per cent in Tuesday's trade after the Reserve Bank of India (RBI) announced a scheme for sustainable structuring of stressed assets (S4A), which would allow domestic lenders to convert up to half of the loans held by corporate borrowers into equity or equity-like securities. 
 
 
Under the scheme, banks can split the overall loans of struggling companies on sustainable and unsustainable basis, based on the cash flows of the projects. 
 
 
The amount of loan that current or predictable future cash flows could sustain is sustainable and would be called Part A, RBI said. The remaining, or the Part B loans, can be converted into equity or convertible security. For example, if a company with Rs 10,000 crore loans has a cash flow that can pay interest only on Rs 6,000 crore of debt, then it could be termed Part A. 
 
 
The remaining could be converted into equity or convertible security. Projects with loans up to Rs 500 crore that have commenced commercial operations are eligible for restructuring under S4A. At least half of the total loans have to be sustainable. 
 
 
All the 12 Nifty PSU index stocks were trading higher on Tuesday morning. Shares of PNB were up 2.59 per cent at Rs 84.50. OBC, Union Bank, Bank of India and SBI gained between 1.5 per cent and 1.75 per cent. Bank of Baroda, IDBI Bank, Canara Bank and Indian Overseas Bank (IOB) were other stocks that gained in excess of 1 per cent in the first hour of trade.