Wednesday, 12 December, 2018

RBI tightens bad loan restructuring junks all old debt restructuring schemes

RBI tightens bad loan restructuring junks all old debt restructuring schemes RBI tightens bad loan restructuring junks all old debt restructuring schemes
Orlando Vargas | 15 February, 2018, 16:24

If the resolution plan entails restructuring of the loans, even existing standard loans will get classified as NPAs.

Financial Services Secretary Rajiv Kumar said the new rules are a "wake up call" for defaulters. "Government is determined to clean up things in one go and not defer it. Resolution now will happen within a timeframe", he told PTI. Also, if the resolution plan fails to get implemented by September 1, 2018, the banks will need to initiate proceedings under Insolvency and Bankruptcy Code (IBC) against these borrowers. "Lenders shall continue to pursue such cases as per the earlier instructions", the RBI said. "The home page of the fake website also contains a provision for "Bank verification with online account holders" which appears to have been created with a fraudulent intent of obtaining personal and confidential banking details of customers of banks", RBI stated in a release.

Analysts say the actual level of bad loans is higher than the official figures suggest, pointing to central bank audits of banks, including State Bank of India, that showed non-performing loans were higher than reported for the financial year ended March 2017.

The RBI also said under the new framework the resolution plan which may involve restructuring, change in ownership in respect of "large" accounts, will require independent credit evaluation of the residual debt by credit rating agencies (CRAs) authorised by it.

Karthik Srinivasan, group head, ICRA, said, "While in the short-term this will increase the pain for the borrowers as well the lenders, however the early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in long-term".

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Lenders will now have to work out a resolution plan for defaults within 180 days, failing which the account would be referred to the bankruptcy courts.

The net result could be higher provisions for bad loans, leading to many of them taking a hit on their bottomline.

The Reserve Bank and Sebi are likely to approach their counterparts in Hong Kong for cooperation in the matter relating to the whopping over Rs 11,000 crore fraud at public sector lender PNB where several entities have come under the scanner, officials said Wednesday.

"In view of the enactment of the IBC, it has been made a decision to substitute the existing guidelines with a harmonised and simplified generic framework for the resolution of stressed assets", RBI said in the notification. A non-performing asset is a loan for which the principal or interest payment has not been paid for 90 days or more. As soon as there is a default in the borrower entity's account with any lender, all lenders - singly or jointly - shall initiate steps.

The lender was also able to make significant recoveries of Rs 3,020.5 crore for the quarter, with a majority of the recoveries coming from small accounts. The CRILC main report will have to be submitted on a monthly basis effective April 1, 2018. This information will then have to be reported by lenders to the Central Repository of Information on Large Credits (CRILC) on all borrower entities having aggregate exposure of Rs 5 crore and above with them.

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