Mumbai: The Reserve Bank of India (RBI) has started signalling a change in stance with respect to dealing with stressed accounts on bank balance sheets.
After announcing his maiden monetary policy as the RBI chief, Urjit Patel said that the central bank has decided to ease some norms around the scheme for sustainable structuring of stressed assets (S4A), making it easier for banks to opt for it.
The banking sector regulator will allow banks to classify the sustainable portion of a stressed company’s debt as a standard asset, taking away some of the increased provisioning required. While final guidelines will be announced later this month, the regulator said that the classification will be subject to certain conditions.
The move was considered after a few bankers made representations to the regulator. Under the S4A norms issued in June, banks were asked to either set aside 20% of the total outstanding loan amount, or 40% of the unsustainable debt portion, as provision.
The banking sector is already hailing this as a major positive. “The smoothening of S4A guidelines will help the easier resolution of stressed assets and will be a relief to the banking system," said N.S. Venkatesh, executive director of Laxmi Vilas Bank.
Similarly, Dena Bank’s chairman and managing director Ashwani Kumar believes that the banking sector is only set to benefit from this relaxation. Kumar is also the president of the Indian Banks’ Association (IBA).
On 27 September, Mint reported that the central bank is likely to change its approach towards bad loan management and adopt a more conciliatory approach. The move comes after two years of aggressively pushing bankers to identify and provide against stressed assets. The increased identification of stressed loans and additional provisions also led to banks classifying a higher number of loans as non-performing assets (NPAs). As on 30 June, the banking sector had gross NPAs of ₹ 6.3 trillion.
“The RBI is being pragmatic in assessing probable impact of its guidelines on banks and the market in general. Now it is up to banks to apply some independent thinking and improve the stress situation," a stressed asset turnaround specialist said, on conditions of anonymity.
Patel, on Tuesday, had said that the central bank will, however, be firm and pragmatic in dealing with the problem of stressed assets at India’s banks, weighed down by ₹ 6.3 trillion of bad loans.
“There are four stages of dealing with stressed assets—identification, recording, reporting of this particular subject has been turned satisfactorily," Patel had said at a media briefing after the monetary policy announcement.
“But resolution, which is the fourth leg, needs to be worked (on) more," Patel said.
The RBI governor noted that dealing with stressed assets will require some level of skill and creativity on the part of the bankers and regulators.