RBI's Proposed Norms to Raise Credit Costs for Banks
ECONOMY & POLICY

RBI's Proposed Norms to Raise Credit Costs for Banks

Credit costs are set to moderately increase, impacting bank profitability and potentially leading to a loss of accounts, if the Reserve Bank of India?s proposed provisioning norms for projects under construction are implemented. This adjustment is likely to affect public and private banks differently, according to a report by CareEdge Ratings.

The report predicts an incremental provisioning impact of 0.2% on public banks and 0.1% on private banks between FY25 and FY27. Furthermore, the implementation of this framework may coincide with the Expected Credit Loss (ECL) framework mandated by the RBI, which requires banks to recognize losses on loans as soon as they are anticipated, regardless of whether the borrower has defaulted.

Sanjay Agarwal, Senior Director at CareEdge, highlighted the potential financial repercussions, stating, If the higher charge on the existing stock of funded projects is made by additional provisioning in the profit and loss account, the profits of the concerned banks could be impacted by up to 11% in public banks and 4% in private banks over these three years.

Despite the short-term financial strain, the report suggests that strong asset quality can help lenders maintain balance sheet strength. The increased provisions during the early project stages are expected to reverse once the projects are completed and begin generating cash flows as scheduled.

Credit costs are set to moderately increase, impacting bank profitability and potentially leading to a loss of accounts, if the Reserve Bank of India?s proposed provisioning norms for projects under construction are implemented. This adjustment is likely to affect public and private banks differently, according to a report by CareEdge Ratings. The report predicts an incremental provisioning impact of 0.2% on public banks and 0.1% on private banks between FY25 and FY27. Furthermore, the implementation of this framework may coincide with the Expected Credit Loss (ECL) framework mandated by the RBI, which requires banks to recognize losses on loans as soon as they are anticipated, regardless of whether the borrower has defaulted. Sanjay Agarwal, Senior Director at CareEdge, highlighted the potential financial repercussions, stating, If the higher charge on the existing stock of funded projects is made by additional provisioning in the profit and loss account, the profits of the concerned banks could be impacted by up to 11% in public banks and 4% in private banks over these three years. Despite the short-term financial strain, the report suggests that strong asset quality can help lenders maintain balance sheet strength. The increased provisions during the early project stages are expected to reverse once the projects are completed and begin generating cash flows as scheduled.

Next Story
Infrastructure Transport

Bengaluru-Chennai Expressway: 72km Karnataka Stretch Completed

The National Highways Authority of India (NHAI) has completed the 72-km stretch of the Bengaluru-Chennai Expressway that falls within Karnataka. The project, which faced delays due to local objections over the relocation of the Guddamma Temple at Jinnagara, has now moved past its final hurdle. After over two years of negotiations with villagers and the state government, NHAI successfully shifted the temple and constructed the remaining 500-meter section of the road. Despite the construction being completed, NHAI has yet to announce when motorists will be allowed to use the new road. The expres..

Next Story
Infrastructure Transport

NHAI Officials Inspect NH 181 Ghat Section

Officials from the environment wing of the National Highways Authority of India (NHAI) inspected the ghat section of NH 181 between Kallar and Ooty on Monday, following a directive from the Madras High Court. The inspection was carried out in connection with a case concerning vertical cuttings made by the National Highways-Tamil Nadu state wing on the uphill side of the ghat road. The chief general manager of the NHAI's environmental wing, a respondent in the case, led the inspection of the 38-km stretch. During the visit, officials discovered multiple instances of illegal rock quarrying, wher..

Next Story
Infrastructure Urban

Andhra Govt Allocates Rs.167 Billion for Panchayat Raj

In a move to bolster rural development and promote local self-governance, the TDP-led NDA government in Andhra Pradesh has allocated Rs.167 billion for the Panchayat Raj and Rural Development Department. The government's commitment to reviving the Panchayat Raj system follows what it considers a period of neglect during the previous YSRC regime. Finance Minister Payyavula Keshav highlighted the state's efforts to restore the glory of the Panchayat Raj system, focusing on grassroots governance. As part of this initiative, Special Gram Sabhas were held across 13,326 panchayats on August 23 to a..

Hi There!

"Now get regular updates from CW Magazine on WhatsApp!

Join the CW WhatsApp channel for the latest news, industry events, expert insights, and project updates from the construction and infrastructure industry.

Click the link below to join"

+91 81086 03000