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Changed bad loan norm may bloat banking NPAs

Author: Debasis Mohapatra/Wednesday, February 14, 2018/Categories: Banking & Financial Services

Changed bad loan norm may bloat banking NPAs

Mumbai, Feb 14: New RBI guidelines on restructuring of defaulted bank loans along with imposition of stricter timeline is likely to push a flurry of accounts to the bankruptcy court for resolution in coming quarters.

According to analysts, around Rs 2 lakh crore of loan accounts may come to the bankruptcy court under the Insolvency and Bankruptcy Code due to the changed rules.

“Around 50 large borrowers have banking exposure of Rs 2,000 crore or more and will need resolution by September 1, 2018. The total borrowings of these companies stand at Rs 2.46 lakh crore of debt. If the resolution plan fails to get implemented by September 1, 2018; then banks will need to initiate proceedings under IBC against these borrowers,” the rating agency ICRA said in a report.

The Reserve Bank of India, on Monday evening, scrapped various loan restructuring programmes currently in use by banks for defaulted loans.   

In a notification, the central bank said that schemes such as Corporate Debt Restructuring, Sustainable Structuring of Stressed Assets, Strategic Debt Restructuring and Flexible Structuring of Existing Long Term Project Loans were abolished. It has also disbanded Joint Lenders Forum designed to resolve potential bad debts in the banking system.

RBI also said that the reporting requirement of defaulted accounts has also been changed. The new norm also specifies that in case of defaults amounting to more than Rs 5 crore, it has to be reported on a weekly basis. 

According to analysts, the changed norm is likely to further push the credit provisioning requirements of banks in the next financial year. “While in the short-term, this will increase the pain for the borrowers as well the lenders, however the early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in the long-term,” ICRA said in a report.

Meanwhile, some analysts are also of the opinion that RBI could have been more accommodative in its provisioning norms.

RBI should have been more accommodative on provisioning as genuine business and economic cycles could lead to payment delays, said Manish Aggarwal, Partner & head resolutions - special situations group, KPMG India.

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