PSU Bank shares drop as new RBI norms for infra project financing spoil mood

According to a report by CNBC TV18, the Nifty public sector undertaking (PSU) bank index, which has risen by an impressive 27 percent in the current year so far, dropped up to 5 percent in trade on Monday.

All constituents of the PSU Bank index were trading in the red, reports CNBC TV18.

The top laggards on the index were Punjab National Bank (PNB), Canara Bank, Union Bank of India, Bank of Baroda (BOB), and Bank of India (BOI) all slipping more than 3 percent, as per CNBC report.

According to a report by 5paisa.com, the RBI-proposed stricter project finance restrictions will increase the cost of funding for different industrial and infrastructure projects, such as bridges, ports, power plants, and highways, for lenders (banks).

The banks are currently only required to provide 0.4 percent of the fund amount for exposures that are not in default, and under the new standard, lenders would have to set aside 5 percent of their total loan amount as general provisions for all loans, including new and existing, the report added.

5paisa.com reported quoting the proposed regulations that loans made during the construction phase should have a 5 percent standard provision, which would increase from 2 percent in March 2025 to 3.5 percent in March 2026 and 5 percent in March 2027.

The provisions would be spread out over the four quarters of each fiscal year, the report added.

5paisa.com reported if these new regulations are implemented by the country's central bank, banks that have a large amount of exposure to these kinds of projects may see a decline in profitability.