RBI's measures are good; be selective in buying PSU banks, say analysts

Banking stocks came under selling pressure on Wednesday after the Reserve Bank of India (RBI) unveiled new norms for dealing with non-performing assets (NPAs) on Monday. Nifty PSU Bank was the worst performing index, falling over 3% in intra-day deals with Punjab National Bank, Bank of India, Canara Bank, IDBI and Oriental Bank of Commerce slipping 4.3% to 7%.
Also Read: NPA levels of banks set to bloat with RBI's mega resolution framework
The fall comes on the back of a revised framework on resolution of stressed assets issued by the RBI, which is likely to increase the reported non-performing asset (NPA) levels of the banks in coming quarters. From a long-term perspective, however, analysts see the new rules helping early identification of stress and resolution of issues. Not only will the move promote better credit discipline, they see it as a precursor to implementation of International Financial Reporting Standards (IFRS) going ahead.

"Corporate banks with higher quantum of stressed / restructured assets (Canara Bank, PNB, Bank of India, Union Bank, SBI and ICICI Bank) may see higher proportion of their bad loans drifting toward IBC process (failing any satisfactory resolution plan), as the upgrade / recovery chances of such tenured stressed loans remains low," say analysts at Motilal Oswal Research.