New CDR Norms to Erode PSBs' Profits by up to 18 Percent: Report

Tuesday, 31 July 2012, 12:47 Hrs
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Bangalore: The new corporate debt recast (CDR) norms issued by the Reserve Bank will have a massive impact on the profitability of state-run banks to the tune of 18 percent, says a report by Standard Chartered Securities.

However, the report says, the impact on private sector banks will be minimal, up to 2 percent in profit terms.

"If the new CDR guidelines are followed, net profit of state-run banks will likely decline by 6 percent to 18 percent. But for private banks, it will be much lower at 0.2 percent to 2 percent," the report by Mahrukh Adajania and Rounak Agarwal said.

It noted that new provisioning norms for CDR loans are still substantially lower than the existing NPL provisioning.

State-run banks together had a CDR book of 1,17,100 crore as of FY12, according to the report. In FY12 alone, they added 62,800 crore in restructured assets.

The new provisions, under which banks will have to provide additional 3 percent in the first year and 5 percent in the second year, will see this increasing by 3,500 crore.

SBI will have to make 930 crore additional provisioning at 3 percent incremental coverage, which will bring down EPS growth (FY12) to 34 percent from 42 percent.

As of March 12, SBI had a restructured loan book of 31,160 crore with the FY12 CDR book totalling 8,400 crore.

The second biggest victim will be Punjab National Bank, whose provisioning will rise by 690 crore, but its EPS impact will be minus 1 percent, from 10 percent. The Delhi-based lender had a CDR loan book of 23,060 crore as of FY12, it added 1,481 crore in FY12 alone.

The worst impact on EPS will be at Oriental Bank of Commerce, which will see EPS erosion at 46 percent (minus) post-implementation, from existing minus 35 percent, the report said.
Source: PTI
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