REC, PFC News Today

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In yesterday's trading session, the shares of REC and PFC initially plunged up to 12% post-RBI's draft guidelines. The proposed 5% general provision exceeds the current 0.4% standard. However, stocks recovered later, following CLSA's optimistic outlook.

CLSA reassured that there will be minimal impact on REC and PFC's profitability despite RBI's draft guidelines. Both companies boast a healthy tier-1 ratio of 23%, ensuring resilience.

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Regulatory Implications and Lenders' Exposure

RBI's draft guideline proposes stricter provisioning requirements and limits lenders' exposure in consortiums until project operationalisation. Private banks may face reduced competition in renewable energy projects due to these regulations.

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Impact of the RBI’s Decision

IIFL Securities predicts a 200-300 basis points hit on tier-1 ratios for REC and PFC, potentially affecting valuation multiples. However, RoE is expected to remain unaffected.

CLSA emphasises that higher provisions will impact impairment reserves but not drag down profits for REC and PFC, given their robust capitalisation. The proposed changes align with RBI's aim to strengthen project financing regulations.

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Forward Outlook

RBI has solicited feedback on the proposal until June 2024. Despite initial market jitters, confidence in REC and PFC's resilience remains high, with both stocks showing significant gains over the past year.

Sources:

https://www.cnbctv18.com/market/rec-pfc-share-price-no-impact-profitability-clsa-capital-adequacy-rbi-draft-rules-19407026.html
https://www.moneycontrol.com/news/business/stocks/rec-pfc-to-see-minimal-impact-from-rbi-draft-norms-says-clsa-stocks-show-mild-recovery-12715466.html

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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