PFC, REC, IREDA, PNB, others decline up to 13%: Why PSU stocks are falling sharply today - explained

Shares of PSU stocks dropped by up to 13% as RBI imposed stricter regulations on project loans during the construction phase, with provisions set at 5%. Power financing companies like PFC and REC witnessed sharp declines.

A Ksheerasagar
First Published6 May 2024, 11:46 AM IST
At the time of writing, 54 constituents of the BSE PSU index were trading in the red.
At the time of writing, 54 constituents of the BSE PSU index were trading in the red.(AP Photo)

In Monday's session, shares of PSU stocks experienced sharp declines, with some of them plummeting by as much as 13%.

This downward trend followed the Reserve Bank's announcement on Friday proposing stricter regulations, governing lending to projects under implementation.

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.

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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.

The proposed guidelines also outline details for stress resolution, specify criteria for upgrading accounts, and invoke recognition. Lenders are expected to maintain project-specific data in an electronic and easily accessible format, updating any changes in loan parameters promptly, but within 15 days of such changes, PTI reported. 

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The RBI mandates the implementation of necessary systems for this purpose within three months of issuing these directives.

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.

Also Read: Multibagger PSU stock rallies 10% on robust Q4 show over provision write-offs

At the time of writing, 54 constituents of the BSE PSU index were trading in the red, resulting in a 3.4% drop in the index to 19,760 points. The index hit an intraday of low 19,632 points, down 3.86%. 

Conversely, the RBI has issued guidelines to banks concerning their involvement in the capital markets, stressing adherence to specified regulations. The recent circular focuses on "Banks' Exposure to the Capital Market - Issue of Irrevocable Payment Commitments (IPCs)."

This action by the RBI follows adjustments in the settlement cycle introduced by stock exchanges, transitioning from T 2 to T 1 rolling settlement for equities. As a result, existing guidelines on the issuance of IPCs by banks have been reevaluated to ensure compatibility with the new settlement cycle, as reported by the ANI


Disclaimer: We advise investors to check with certified experts before taking any investment decisions.

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First Published:6 May 2024, 11:46 AM IST
HomeMarketsStock MarketsPFC, REC, IREDA, PNB, others decline up to 13%: Why PSU stocks are falling sharply today - explained

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