Monday, June 21

Boost for banks with big loans against property

Mumbai: Banks with a larger share of loans against property are likely to benefit from the RBI’s latest relief on small value loans to micro and medium level companies and lenders like DCB Bank, Federal Bank, City Union Bank and Kotak Mahindra Bank could see earnings improve, nudging them to open up credit lines to ease the freeze. RBI on Tuesday allowed a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade. The restructuring has to be implemented by March 31, 2020. RBI has allowed the scheme for restructuring of stressed assets with credit facilities not exceeding Rs 25 crore as on January 1. When borrowers fail to repay loans due to genuine reasons, lenders relax terms and conditions for repayments, known as restructuring in market parlance.

“You needed some confidence building measures to lend each other,” said Sanjiv Bhasin, executive VP-markets, IIFL Securities. “The RBI move has instilled just such confidence. Select banks will significantly do well in future as creditworthiness of small companies is likely to improve giving opportunity for credit expansion.”

While BSE Sensex slumped 1%, BSE Bankex dipped 0.77%. Federal Bank shares rose 2% to close at ?94.85 on Wednesday. While DCB Bank shares fell marginally by 0.18%, City Union Bank shares slipped 0.21%. Bank shares fell on Wednesday on broader market trends.

“The latest RBI move was in line with the government’s intention,”said Ashutosh K Mishra, head of research – institutional equity at Ashika Stock Broking. “This will help both credit flows and the holistic economy as this will add confidence among all banks, private and public. MSME loans mostly happen through loan against properties with banks like DCB, IndusInd, Kotak having larger share.”

“Such banks’ earnings would be positively impacted over a period of time as the move will help in the long term,” he said. “Benefits of the latest MSME relief are likely to be derived over a long period of time in the form of improved GST compliance and resultant improvement in credit flows,” said Digant Haria, AVPresearch at Antique Stock Broking. The move will be interim relief for banks in the form of lower provisioning requirements.”

“The twin impact of demonetisation and GST has impacted them negatively and this measure can ensure better credit flows,” he said.

Banks can restructure loans only if such borrowing companies are GST compliant. This means, more companies are expected to come under GST regime, pushing up the government’s tax collections. A GST compliant company is seen as more creditworthy compared to non-complaint entities.

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