The recent draft guidelines by the Reserve Bank of India (RBI) on under-construction infrastructure projects dragged shares of many PSU and private sector banks of late. A sharp increase in provision for standard assets to 5 per cent for all fresh and existing project loans in under construction are seen to have a direct impact on the cost of debt. This will dampen the bidding appetite from infrastructure developers in the medium term, anlaysts warned.
"These draft provisioning requirements are well above the current standard provision requirement of 0.4 per cent and hence punitive toward project loans, in our view," said Nomura India.
Nomura India said PSU Banks such as State Bank of India and Bank of Baroda have higher exposure to corporate and infra loans in their loan mix. They are more inclined towards capex and infra financing, which materially impacts their medium-term loan growth outlooks.
PNB shares are down 11 per cent in the last five sessions. Bank of Baroda has plunged 10 per cent during the same period. SBI shares fell 2 per cent while those of Bank of Baroda tanked 7 per cent. Private lenders such as HDFC Bank, Axis Bank and ICICI Bank are down 3 per cent each for the same period.
"Moreover, they have lower PPOP-level RoAs vs private banks, and so a significant delta in credit cost (as a result of this additional provisioning) can impair their sustainable RoE profile significantly. Private banks generally have higher CET1 ratios and also buffer provisions, and so are relatively better off, although they are also negatively impacted. The extent of the impact is hard to gauge at this point since banks do not provide color on what projects are in the construction phase vs operational," Nomura India said.
Kotak Institutional Equities said there may not be any immediate impact. "The memories of the last corporate cycle are still quite fresh, which create concerns about the current guidelines.
"But we must note that: (1) infrastructure loans are relatively small at 8% of loans compared to >15% in FY2015; (2) the mix of these loans has a higher share of operational loans as compared to being under construction; and (3) the promoters that worked through the last corporate cycle have a stronger balance sheet structure. The same is also applicable in the commercial real estate sector, as we have come through a painful impairment cycle in this sector as well," it said.
JM Financial said: "We estimated additional credit costs in FY25 as 6/10/7/6 bps for HDFC Bank/ICICI Bank/Axis Bank/Kotak Bank. For PSBs, the incremental credit costs are expected in the range of 12-21bps."