RBI Tightens Lending Rules; Bank Stocks Brace for Impact
RBI Cracks Down on Unsecured Loans, Banking Stocks Under Pressure: The Reserve Bank of India (RBI) has tightened rules on loans. It wants banks to be more careful, especially with unsecured loans.
Banks will now set aside money based on expected credit losses (ECL). Home and gold loans will need at least 1.5% provisioning. This may reduce bank profits in the short term.
The new rules will start from April 1, 2027: RBI has introduced a three-stage system. Stage 1 covers 12-month expected losses, while Stages 2 and 3 cover lifetime losses.
Provisioning in Stage 1 will be 0.25%–0.40%, and 1% for unsecured retail loans. In Stage 2, it will be 5% for most loans and 1.5% for home and gold loans.
The 90-day NPA rule stays the same. If one loan defaults, all loans of that borrower become NPAs. Banks must also adopt EIR-based income recognition by 2030.
According to Macquarie Group, public sector banks may see a 5–10% hit to net worth. Credit costs may also rise. Private banks may see less impact.
Experts say the rules are good in the long term but may hurt bank stocks in the short term. For the Nifty Bank, the range is 55,700 to 56,500. A rally may come above 57,300. If it falls below 55,500, a correction is likely.
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