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India shares fall as tighter bad-debt rules drag down banks

Stricter norms could drive up provisions, hurting lenders' earnings

MUMBAI (NewsRise) -- Indian shares declined Wednesday, weighed by losses in lenders after the country's central bank tightened rules for resolution of bad debts.

The BSE Sensex, opening after a day's break, dropped 0.4% to 34,155.95 and the Nifty 50 Index fell 0.4% to 10,500.90.

An index of state-owned banks tumbled 4.8% and that of private lenders dropped 1.2% after the Reserve Bank of India introduced a new framework for resolution of stressed assets. The stricter rules, unveiled late Monday, are expected to lead to higher provisions, hurting banks' earnings, analysts said. The revised guidelines are applicable to all existing stressed accounts, potentially leading to a jump in provisioning for lenders.

"Overall, this framework is negative from a banking sector earnings perspective in the near to medium term (as provisions surge)," ICICI Securities said in a note. "The higher provisioning will keep earnings muted, especially for public sector banks. However, in the long-run, it is a good structural change."

The new framework comes as Indian banks, especially the state-run lenders, deal with mounting bad debts that weaken their balance sheet and impede the ability to lend more to companies. In a bid to help the state-owned banks, the government announced a plan in October to inject more than $32 billion rupees in them.

All 12 constituents on the Nifty state-run bank index ended lower. State Bank of India dropped 4.1% and Canara Bank declined 5.8%. Punjab National Bank tumbled 9.8% after saying it detected fraudulent and unauthorized transactions of $1.77 billion in one of its branches in Mumbai, and the matter has been referred to law enforcement agencies. Bank of India slumped 7.9% after it reported a net loss for the December quarter as compared with a profit a year earlier.

Among private banks, those with higher corporate exposure declined, while retail lenders outperformed. ICICI Bank fell 2.3% and Axis Bank dropped 3.4%. HDFC Bank and IndusInd Bank rose by 0.1% and 0.2%, respectively.

Bharat Heavy Electricals ended unchanged after rising 1.6% intraday after the company won an order of 5.60 billion rupees ($87.4) for emission control equipment from NTPC.

Tata Power gained 0.2% despite reporting a 1.1% decline in net profit for the December quarter. Godrej Industries lost 0.7% after reporting a less than 1% increase in net profit for the period.

Globally, the cues were positive before the release of the U.S. January consumer price index data later Wednesday. The S&P 500 Index rose for the third day overnight and index futures pointed to another positive session for the U.S. benchmark. The Nikkei Asia300 Index of companies outside Japan advanced 1.1%.

-- Nimesh Vora

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