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
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.