bad loan: Bad loans to soar with RBI’S new loan norms
MUMBAI: Banks are set to report a fresh spike in bad loan numbers in the coming quarters on account of new RBI norms that require lenders to classify loans henceforth restructured as non-performing assets (NPAs).
According to data compiled by ratings agency ICRA, around 50 large borrowers have banking exposure of Rs 2,000 crore or more and will need resolution by September 1, 2018. The total borrowings of these companies stand at Rs 2.5 lakh crore of debt. If the resolution plan entails restructuring of the loans, even existing standard loans will get classified as NPAs. Also, if the resolution plan fails to get implemented by September 1, 2018, the banks will need to initiate proceedings under the Insolvency and Bankruptcy Code against these borrowers.
The financial stability report of the RBI said that special mention accounts (SMA2) — loans where borrowers have delayed payments — account for advances of around 3.5% of bank loans. These loans are not yet classified as NPAs. In the past, bankers would use the threat of classifying a borrower as a defaulter to get them back on track for timely payments. Now failure to meet payment timelines would result in borrowers being mandatorily classified as a defaulter.
According to SBI deputy MD Sunil Srivastava, banks would be proactive in classifying loans as they would not want their loan accounts to be identified by the RBI and pointed out for divergence. “Banks will now proactively take a stance as they are being encouraged to recognise bad assets,” he said.
On the positive side, the RBI has moved away from a prescriptive regime. Earlier, the central bank dictated on issues such as classification of sustainable debt and directions against relaxations in interest or tenure. “The guidelines have moved from prescriptive to normative. However, banks will need to get a rating of the restructured debt from an external agency,” said Srivastava.
Edelweiss Asset Reconstruction Company chairman Siby Antony said, “The good part is that it is a very generic framework within which bankers have to now operate. There are no guidelines on eligibility unlike the past, which resulted in many accounts being excluded. The only catch is that it now says that all lenders must agree to restructuring and this must be reflected in the books of bankers as well as borrowers. This will make the whole scheme impractical. In the earlier schemes, it was 75% because there were many non-mainstream lenders who may not like to join the scheme.”
According to Antony, RBI’s asset quality review has resulted in several corporate loan accounts being classified as NPAs. This will reduce the need for large-scale reclassification. However, there could be some large power projects that may turn bad.
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