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RBI had asked banks to make 10% provisions for all loans under the three-month moratorium announced on March 27. (Photo: Mint)
RBI had asked banks to make 10% provisions for all loans under the three-month moratorium announced on March 27. (Photo: Mint)

More provisioning seen taking a toll on lenders’ profitability

  • The excess provisions will be 30,000 crore, spread over March and June quarters, say industry experts
  • RBI also said banks will get an additional 90 days to resolve assets under the 7 June, 2019, circular on stressed assets

Banks are disappointed with the Reserve Bank of India’s (RBI) recent measures on provisioning and stress resolution. RBI on 17 April asked banks to make 10% provisions for all loans under the three-month moratorium announced on 27 March and said banks will get 90 more days to resolve assets under the 7 June 2019 circular. The additional provisioning norms will hurt profitability and, ultimately, capital, two bankers said on condition of anonymity. The 90-day extension will not cover most of the unresolved stressed assets and thus will add to more provisions, they added.

“When the RBI governor announced the moratorium, everybody jumped with joy, only to realize later that it comes with the rider of enhanced provisioning. The fear is that a large chunk of my capital may be wiped out because of the 10% additional provisioning," said the chief of a public sector bank, one of the two bankers cited above.

Brickwork Ratings said the 10% precautionary provisioning could be adjusted against actual provisions if these accounts default in FY21. “As per our estimates, the RBI’s stipulation on additional provisioning requirements could increase the total provisioning of banks by around 35,000 crore in the March-June 2020 period," said Vydianathan Ramaswamy, director, Brickwork Ratings.

“Many of the large accounts identified under the 7 June circular have completed the 180-day resolution period. Banks were hoping that these accounts will be resolved before March end. We had written to RBI seeking some leeway for these accounts, but it looks like the banks will have to bear the burden of additional provisioning," said the second banker mentioned earlier.

RBI has allowed leeway only to those accounts that were under the 30-day review period as on 1 March or where the 180-day resolution period had not expired as on 1 March. Most accounts where resolution plans were being worked out since June last year, did not yield any result till January, the end of the 210-day period, said

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