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Business News/ Industry / RBI asks banks to keep higher provisions against bankruptcy court cases: report
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RBI asks banks to keep higher provisions against bankruptcy court cases: report

RBI asks banks to set aside 50% of the loan amount as likely losses for all cases referred to the National Company Law Tribunal, says a report

RBI also said that provisioning should be 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation. Photo: Aniruddha Chowdhury/MintPremium
RBI also said that provisioning should be 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation. Photo: Aniruddha Chowdhury/Mint

Mumbai: The Reserve Bank of India (RBI) has directed banks to keep higher provisions against all cases referred for bankruptcy proceedings, according to an Economic Times report.

In a communication sent on late Friday evening, the central bank told banks to set aside 50% of the loan amount as likely losses for all cases referred to the National Company Law Tribunal, the report said.

NCLT is the arbitration authority for cases filed under the Insolvency and Bankruptcy Code (IBC).

RBI also said that provisioning should be 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation.

The ET report also mentioned that banks can spread the provisions across four quarters from June 2017 till March 2018. The new provisioning rules will be applicable in the case of the top 12 defaulters identified by the RBI including Essar Steel, Bhushan Steel and Alok Industries. These cases which account for about 25% of the gross bad loans in the system will be referred for bankruptcy proceedings within a month.

In its 13 June circular, RBI had said accounts with outstanding amounts of more than Rs5,000 crore, of which at least 60% was classified as non-performing by banks as of 31 March 2016, can be referred for bankruptcy. The regulator had also said it would detail revised provisioning norms for cases accepted under the bankruptcy code

Bankers were expecting RBI to give forbearance on provisioning requirement for 8 quarters, Mint had reported on 15 June. While their request has been turned down, the regulator has allowed banks to reverse the provisioning once the resolution plan is implemented and if the company starts making repayment, the ET report added.

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ABOUT THE AUTHOR
Gopika Gopakumar
Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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Published: 26 Jun 2017, 09:32 AM IST
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