NEW DELHI: Many banks may have to make additional provisions for bad loans, following the new rules on loan restructuring. It is learnt that private as well as some of the public sector banks have approached the Reserve Bank of India (RBI), seeking relaxations on the ground that the new guidelines would impact their balance sheets.
An RBI communique to banks on April 17 said, “....accounts, which were standard accounts (accounts where interest payments are punctual) on September 1, 2008 would be treated as standard accounts on restructuring provided the restructuring is taken up on or before March 31, 2009.” However, the central bank had clarified that this modification appears to have been misinterpreted by some banks to mean that the account will not slip to the NPA category just because an application for restructuring is received.
Since a standard account calls for lower provisioning, which is deducted from the earnings, many lenders are keen to see that the ‘restructured’ accounts qualify as standard ones. Banks argue that the clarification has not left them with enough time to restructure these accounts, which often takes prolonged negotiations with corporate borrowers.
Some of the banks find themselves in a situation where they have to go for last minute tweaking of balance-sheets to take care of the recent clarification. This involved additional provisioning against non-performing assets (or sticky loans). “The extent of extra provisioning could be Rs 200-250 crore for a large bank,” said a senior official of a state-owned bank.
“It’s up to RBI to decide whether banks will have to make provisioning on accounts where applications for restructuring were filed on or before March 31,” said a State Bank of India official. “As far as SBI’s stand is concerned, the bank follows RBI guidelines until further notice.”
According to a Crisil study, gross non-performing assets (NPAs) of the banking sector would touch around 5% of the advances by 2011 from 2.3% by end-March 2008. It says that in absolute terms, the NPA would triple to Rs 1.9 trillion. Under an RBI definition, NPA is an advance where payment of interest or repayment of installment of principal (in case of term loans) or both remains unpaid for a period of two quarters or more.
“Once these accounts (which are awaiting restructuring) are categorised as NPAs, they would remain so for a year. Understandably, banks are worried,” said an official of Indian Banks’ Association — the management association for banks in India.
Source:The Economic Times