PFC, REC shares fall up to 12%. CLSA says don't worry about impact of RBI norms

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With the RBI significantly enhancing the provisioning requirement during the construction phase of a project from 0.4% to 5.0% for all existing and fresh exposures, shares of PSU financers PFC, REC and IREDA fell up to 12% today.

Global brokerage firm CLSA, however, told investors that it doesn't see any impact on the profit and loss account of PFC and REC but can drag capital adequacy.

"The draft guideline is applicable for all lenders but NBFCs follow IndAs accounting. Per existing rules, the difference in provision requirements between RBI rules and IndAs will have to be adjusted via impairment reserves (equity line item). The overall impact on PFC and REC from higher standard assets will not be on their P&Ls but on capital adequacy ratios. PFC's and REC's latest Tier 1 stood at 23% - they are well capitalised," CLSA said in a note.

Private banks anyway have limited participation in thermal and hydro projects, and these new regulations may reduce the risk of higher competition from banks in the renewables segment as well, it said.

IIFL Securities said REC, PFC and IREDA should have no RoE impact, but can impact their Tier-1 ratio by 200-300 bps and also potentially weigh on their valuation multiples.

Under the new rules, as a project reaches operational phase the provisioning can be reduced to 2.5% and further to 1% provided the project achieves certain financial benchmarks indicating stability and reduced risk, such as positive net operating cash flows and a significant reduction in long-term debt.

"As per IndAS, the difference between the ECL provisions and prudential floor (5% in this case) shall be apportioned (and not routed through P&L) and held as impairment reserve. However, the impairment reserve shall not be included in the capital ratios and deducted while calculating NNPA," said IIFL's Rikin Shah.

At around 12:53 pm, shares of IREDA were trading 4.4% lower, PFC was down 9% and REC 8%.

Also read | PSU bank stocks fall up to 6% as new RBI guidelines spoil mood

The impact of RBI's new guidelines was also seen on PSU bank stocks which fell up to 6% with Canara Bank, Punjab National Bank and Bank of Baroda leading the downside.

India's largest lender State Bank of India (SBI) also fell over 3% as a result of which Nifty PSU Bank index was down over 4%.



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