RBI tweaks debt-restructuring norms

Posted By: Religare
Subscribe to GoodReturns

RBI tweaks debt-restructuring norms
Upset with the rising loan defaults in the banking system, the Reserve Bank of India (RBI) on Thursday released fresh and stringent guidelines on loan restructuring which seeks to arrest the rising number of debt-restructuring cases.

RBI said all the loans recast after April 1, 2015, should be classified as non-performing asset (NPA) and from June 1, 2013, the provisioning requirement for fresh standard restructured advances would be increased to five per cent from 2.75 per cent, for the interim period.

The new guidelines also stipulate that assets which are already restructured should have provisioning of 5 per cent developed gradually over a period of three years. Currently, banks are allowed to recast debt without tagging it as NPA.

Analysts said that hike in provisioning to 5 per cent will affect the banks' profit before tax by at least one-three per cent in FY'14. RBI has also said that short-term loans, (except working capital) would be seen as restructuring, if rolled over more than twice.

These announcements have come on the recommendations of Mahapatra committee on loan restructuring which was asked to formulate ways to reduce recast cases as they rose to Rs 76,470 crore in 2012-13. FinMin says that if all restructured loans are classified as NPAs from on Thursday, the gross NPA level of public-sector banks would shoot up to 11.59 per cent of gross advances, from 4.18 per cent at the end of December.

RBI also stated that promoters of firms will have to pay more to get their exposure restructured, and bring in 20 per cent of the erosion of the net present value, compared with 15 per cent earlier. Their personal guarantees have also been made mandatory.

Read more about: rbi
Please Wait while comments are loading...
Company Search
Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'