MOSL: FINANCIALS-Making RBI captain of the ship-NPA resolution – Is it enough?
​Financials: Making RBI captain of the ship; NPA resolution – Is it enough?
- GOI passed an ordinance to empower the RBI to more effectively deal with bad loans. Under the new policy, RBI is permitted to a) issue directions to banks to initiate insolvency resolution process for NPAs, b) issue directions for resolution of stressed assets, and c) appoint authorities to resolve NPAs.
- RBI has issued directions regarding resolution of assets under Corrective Action Plan (CAP) in Joint Lenders Forum. Modification in the guideline is focused on reducing the timeline for resolution (no need to re-refer to Board and reduction in majority to 60%/50% by value/number of lenders from 75%/60% earlier) under CAP.
- Giving more power to RBI is a welcome step considering PSU bankers were not willing to take bold decisions (for resolutions and haircut) due to fear of regulatory agencies. This along with other mechanisms like SDR, S4A, 5:25 and Insolvency and Bankruptcy code should expedite resolution process.
- We are seeing moderation in the new stress loan creation for PSU banks. Giving more power to RBI may expedite the resolution process. In our view initial lag of the resolution cycle would be led by Steel (20%+ of industry NPA) and roads/construction segment (10%+ of industry NPA). PSB valuations are already reflecting the capitalization, growth and core profitability issues. Big ticket resolutions could lead to re-rating. Our top picks amongst corporate lenders are ICICIBC, SBIN, PNB and BOB.
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