Banks seek clarity from RBI on new NPA norms

Banks seek clarity from RBI on new NPA norms

RBI has also tightened the criterion for up-gradation of NPA accounts or accounts which gets classified as NPAs upon restructuring under the resolution plan approved by JLF. "It has issued various instructions aimed at resolution of stressed assets in the economy, including introduction of certain specific schemes at different points of time.The guidelines say", In view of the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC), it has been made a decision to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets".

According to data compiled by ICRA for around 50 large borrowers having banking exposure of Rs 2,000 crore or more and will need resolution. The first such weekly report shall be submitted for the week ended February 23. Till then public sector banks (which account for 70 percent of the banking system and nearly 90 percent of bank NPAs) were happily ever-greening bad loans of influential, politically connected promoters through technical adjustments. "PSU banks witnessed sell-off as the RBI scrapped a number of loan-restructuring schemes which may lead to further jump in provisions, impacting profitability of these banks", said Vinod Nair, head of Research, Geojit Financial Services.

Banks must also vet the resolution plan through credit rating agencies for independent credit evaluation (ICE) of residual debt. While accounts with aggregate exposure of ' 5 billion and above shall require two such ICEs, others shall require one ICE.

"By mandating weekly information on large delinquent accounts, by directing that a resolution plan be scripted immediately after default, and by setting stringent timelines for referring an account to the Insolvency and Bankruptcy Code process, the RBI is establishing an ecosystem where NPAs would get recognised on time and their resolutions are structurally quicker than before", Krishnan Sitaraman, a senior director at Crisil, said in a report yesterday. All stressed asset cases above Rs 2,000 crore needs to be resolved within a period of 180 days. It said banks have to come together to work out a resolution plan as soon as a default happens and if not done within 180 days, the account should be referred to the bankruptcy courts.

"Specified period" means the period from the date of implementation of RP up to the date by which at least 20 percent of the outstanding principal debt as per the RP and interest capitalisation sanctioned as part of the restructuring, if any, is repaid.

After enacting its first comprehensive bankruptcy regime in 2016, India previous year gave the central bank more powers to push lenders to deal with almost $150 billion in troubled bank loans.

Banks will face penalties in case of failure to comply with the guidelines.

Some of these accounts are already classified as NPAs and may not add to the overall stock of NPAs. Most of these loans belong to the infrastructure sectors including roads, telecom, power and ports and are under the plans such as strategic debt restructuring and sustainable structuring of stressed assets.

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