- In Monday’s trading session, shares of Public Sector Undertaking (PSU) stocks experienced a significant drop, with some plummeting by as much as 13%.
- This downward trend followed the Reserve Bank of India’s (RBI) announcement on Friday, proposing stricter regulations for lending to projects under implementation.
- Shares of power financing companies such as Power Finance Corporation (PFC) and Rural Electrification Corporation saw declines of 13% and 13.6%, respectively, while PSU banks like Canara Bank, Punjab National Bank, Bank of Baroda, and Bank of India fell over 5%.
PSU stocks tumble following RBI’s announcement of stricter lending regulations, causing significant declines in shares of power financing companies and PSU banks.
RBI Proposes Stricter Lending Regulations
The RBI guidelines stipulate that a 5% general provision must be set aside for all existing and new project loans in the construction phase, i.e., before commercial operations commence. Once the project transitions to the operational phase, these provisions can be reduced to 2.5% of the funding outstanding and further to 1% under certain conditions. These conditions include the project demonstrating a positive net operating cash flow adequate to cover current repayment obligations to all lenders, along with a minimum 20% decline in the project’s total long-term debt with lenders from the outstanding amount at the time of achieving the Date of Commencement of Commercial Operations.
Impact on Power Financing Companies and PSU Banks
Following this update, shares of power financing companies such as Power Finance Corporation (PFC) and Rural Electrification Corporation experienced declines of 13% and 13.6%, respectively. Additionally, the shares of IREDA also saw a significant tumble of nearly 7%. In addition, PSU banks witnessed sharp declines in today’s trade, with Canara Bank, Punjab National Bank, Bank of Baroda, and Bank of India falling over 5%. The remaining eight constituents of the index are also trading in negative territory. Overall, the Nifty PSU index fell 4.3% to 7,202 points.
Conclusion
The RBI’s proposed stricter lending regulations have caused a significant drop in PSU stocks, particularly in power financing companies and PSU banks. Investors are advised to consult with certified experts before making any investment decisions in light of these developments.
