New CDR NormsTo Erode PSBs' By Net Up To 18 Percent: StanChart

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 but will promote discipline too, 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 & 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 addional 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 second biggest impact on EPS will be at Canara Bank which will witness erosion to minus 28 percent, which currently is also down at minus 24 percent, says the report, adding its provisions will rise 240 crore. Bank of Baroda, the third largest PSB, will see its EPS coming to 2 percent (from 10 percent) and its provision will rise 510 crore. In FY12 its CDR stood at 885 crore and the cumulative restructured book at 17,140 crore. The city-based Bank of India will see its EPS eroding at minus 8 percent from the current 3 percent (positive), and will also see its provisions rise by 430 crore. In FY12 it added 913 crore in CDR loans taking its overall CDR book to 14,370 crore. Another city-based lender, Union Bank, will see its EPS plunging to (minus) 22 percent from (minus) 14 percent now, and CDR book will rise to 240 crore. In FY12 it added 623 crore in fresh CDR taking CDR outstanding to 799 crore. Among the private sector lenders, ICICI Bank will add 130 crore in CDR under the new provision, and see its EPS whittling down to 22 percent from 24 percent. As of FY12 the largest private sector lender added 374 crore in CDR, taking its restructured asset book to 426 crore. Axis Bank will have to set aside 110 crore in provisions, pulling down its EPS to 22 percent from 24 percent. It added 133 crore in CDR last fiscal with the cumulative recst loan touching 383 crore. HDFC Bank will have minimal impact on provision, which will rise to 20 crore and will not have any impact on EPS which will continue at 30 percent. Its total CDR book stood at 78 crore. The Reserve Bank last week issued new CDR gudelines following the recommendations of its working group seeking tighter loan recast norms, which include higher contribution from promoters to ensure their full commitment, personal guarantee from the promoter which cannot be replaced with a corporate guarantee, higher provisioning by banks on restructured loans, reducing viability tenors and changes to the recompense clause. The new guidelines proposes 5 percent provision on restructured loans up from the current 2-5 percent in a phased manner over two years.