RBI allows banks to recast loans in cases submitted before 31 March
The central bank has allowed banks to approve the restructuring of assets at 5% provisioning
Mumbai: The Reserve Bank of India (RBI) has allowed banks to approve the restructuring of assets at 5% provisioning if the recast had been discussed before the 31 March deadline for the end of regulatory forbearance.
“They had clarified that if there is a case which was admitted before 31 March and will be approved later in the new financial year, it would still qualify for 5% provisions," said Vinay Kumar, executive director at state-owned IDBI Bank Ltd and chairman of the corporate debt restructuring (CDR) cell, which assists lenders to recast borrowings of indebted firms in order to rehabilitate them.
Even though the RBI window is available, there are no cases pending for approvals at the CDR cell, Kumar said.
However, there may be other debt recast cases, such as those under the bilateral restructuring scheme or those restructured by a joint lenders’ forum (JLF), which may make use of this RBI window, Kumar said. A JLF is formed in cases where interest payment is delayed over 60 days, as per the RBI’s guidelines on management of stressed assets. Such a JLF has the power to restructure loans to stressed borrowers outside the CDR mechanism.
On 1 April, the regulatory forbearance provided to restructured loans, allowing them to be classified as standard assets, which attract lower provisions (up to 5% in the first year), expired. In the new financial year, any freshly restructured asset would attract a minimum provision of 15%.
Bankers widely expect the pace of restructuring to drop significantly in 2015-16, partly due to the change in rules which means bankers may become selective in approving high-value debt recast cases.
In the year ended 31 March, loans worth ₹ 65,000-70,000 crore have been restructured at the CDR cell, lower than the ₹ 1 trillion approved for restructuring in 2013-14, Mint reported on 1 April.
Stressed assets—the sum of restructured assets and bad loans—in the Indian banking system rose to 10.7% by the end of September, compared with 10% in March 2014, according to the latest RBI data.
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