REC, PFC slump as rescue package may compress margins

India’s key power lenders Rural Electrification Corporation and Power Finance Corporation slumped on fears the rescue package may compress margins.

Rural Electrification Corp slumped 12.9 per cent and Power Finance Corp fell as much as 11.2 per cent.

On Thursday, the government came out with the

rescue package for the power sector. The package is a long term positive but would compress lenders' margins significantly in short term.

State governments will takeover SEB loans as bonds. These bonds may yield around 8 per cent vs approx 13 per cent lenders make currently from state electricity boards.

The compression in margins can impact profits by 10 per cent in the medium term, traders said.