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  • New NPA Norms: RBI Offers Some Breather: Key Drivers Under New Regime

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    Rahul Parate
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    The Reserve Bank of India (RBI) has offered some relief to banks on rules for dealing with bad loans. RBI will allow banks to finance 50% of the outstanding loan value for resolving distressed assets, compared to earlier proposal of 60%. RBI also diluted rules around accelerated provisioning for non-performing accounts, lowering the required provisions from 30% to 25% for unsecured loans unpaid over six months and from 50% to 40% for loans unpaid over two years. The new framework aims to encourage early resolution of bad loans through formation of lender committees and incentives for collective agreement, while penalizing delays with higher provisioning requirements. It also supports asset reconstruction companies and encourages other players to participate in resolving stressed assets

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    IRAC News

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    The Reserve Bank of India (RBI) has offered some relief to banks on rules for dealing with bad loans. RBI will allow banks to finance 50% of the outstanding loan value for resolving distressed assets, compared to earlier proposal of 60%. RBI also diluted rules around accelerated provisioning for non-performing accounts, lowering the required provisions from 30% to 25% for unsecured loans unpaid over six months and from 50% to 40% for loans unpaid over two years. The new framework aims to encourage early resolution of bad loans through formation of lender committees and incentives for collective agreement, while penalizing delays with higher provisioning requirements. It also supports asset reconstruction companies and encourages other players to participate in resolving stressed assets

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    © All Rights Reserved
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    4 views2 pages

    New NPA Norms: RBI Offers Some Breather: Key Drivers Under New Regime

    Uploaded by

    Rahul Parate
    The Reserve Bank of India (RBI) has offered some relief to banks on rules for dealing with bad loans. RBI will allow banks to finance 50% of the outstanding loan value for resolving distressed assets, compared to earlier proposal of 60%. RBI also diluted rules around accelerated provisioning for non-performing accounts, lowering the required provisions from 30% to 25% for unsecured loans unpaid over six months and from 50% to 40% for loans unpaid over two years. The new framework aims to encourage early resolution of bad loans through formation of lender committees and incentives for collective agreement, while penalizing delays with higher provisioning requirements. It also supports asset reconstruction companies and encourages other players to participate in resolving stressed assets

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    4/24/2015

    www.businessstandard.com/article/printerfriendlyversion?article_id=114013100025_1

    NewNPAnorms:RBIofferssomebreather
    BSReporter|MumbaiJanuary31,2014LastUpdatedat00:49IST
    TheReserveBankofIndia(RBI)hasofferedsomeleewaytobanksforearlydetectionandresolutionof
    badloans.UnderthenewregimekickingofffromApril1,lenderscanfinance50percentofthe
    outstandingloanvalue,RBIsaidinFrameworkforRevitalisingDistressedAssetsintheEconomy,
    releasedonThursday.Earlier,RBIhadproposedtoallowtakeoverofexistingloansbynewfinanciersat
    60percentormoreoftheloanvalue.
    Thecentralbankalsodilutedrulesforacceleratedprovisioningithadproposedfornonperforming
    accounts.Nowlenderswillmake25percentprovisionforunsecuredloansthatremainunpaidforsix
    months.Initially,RBIhadproposed30percentprovisions.
    Plus,forloansthathaveremainedunpaidfortwoyears,bankshavetosetaside40percent,insteadof50
    percent.
    Thenewframeworkcallsforearlyformationofalenders'committeewiththetimelinetoagreetoaplan
    forresolution.Italsooffersincentivesforlenderstoagreecollectivelyandquicklytoarestructuring
    plan.Itwillgivebetterregulatorytreatmentofstressedassetsifaresolutionplanisunderway.However,
    itwillattractacceleratedprovisioningifnoagreementcanbereached.Seekingimprovementsinthe
    currentdebtrestructuringprocess,theframeworkallowsindependentevaluationoflargevalue
    restructuring.Thisisforpurposeofframingviableplansandafairsharingoflosses(andfuturepossible
    upsides)betweenpromotersandcreditors.Italsomootedstepstoenablebetterfunctioningofasset
    reconstructioncompanies.Thisisapartfromencouragingsectorspecificcompaniesandprivateequity
    firmstoplayactiveroleinstressedassetsmarket.Ithasofferedliberalregulatorytreatmentprovidedfor
    assetsales.Lenderscanspreadlossonsaleovertwoyears,providedthelossisfullydisclosed.
    Leveragedbuyoutswillbeallowedforspecialisedentitiesforacquisitionof'stressedcompanies'.
    Stepstoenablebetterfunctioningofassetreconstructioncompaniesmooted.
    Thesectorspecificcompanies/privateequityfirmswillbeencouragedtoplayanactiveroleinstressed
    assetsmarket,RBIsaid.
    Thecontinuingslowdownintheeconomyhasledtoahistoricpileofbadloansinthesystem.
    RBIinitsFinancialStabilityReportonDecember30hadwarnedthestrainonassetqualitycontinuesto
    beamajorconcern."Inabasecasescenario,withthepresentconditionscontinuing,thegrossNPAs
    (nonperformingassets)inthesystemwillriseto4.6percentbySeptember2014from4.2percentin
    September2013ortoaboutRs2.29trillionfromRs1.67trillionayearearlier,"ithadnoted.
    Keydriversundernewregime
    *EarlyformationofJointLender'sForumforactionplan
    http://www.businessstandard.com/article/printerfriendlyversion?article_id=114013100025_1

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    4/24/2015

    www.businessstandard.com/article/printerfriendlyversion?article_id=114013100025_1

    *Carrotforlenderstoagreecollectivelyandquicklytoaplan
    *Penaltyofhigherprovisioningfordelayedactions
    *Independentevaluationforlargerecastdeals
    *Takeoutandrefinancingwillnotbetreatedasrestructuring
    *LossesfromsellingofNPAscanbespreadovertwoyears
    *BuyingandsellingofNPAsbetweenassetrecastfirms

    http://www.businessstandard.com/article/printerfriendlyversion?article_id=114013100025_1

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