"We will not allow any reschedulement of loans. The present NPA norms will not be diluted under any circumstances. In fact, the plan is to tighten the existing norms," special secretary (Banking), C M Vasudev, told The Indian Express on Tuesday.

Corporates and bankers have been lobbying hard with the Reserve Bank of India seeking dilution of the prudential norms in regard to non-performing assets. The RBI is under pressure to recalibrate NPA norms in order to prevent loans extended by financial intermediaries turning sticky in the face of industrial slowdown.

Banks have been arguing that since corporates are not to be blamed for the industrial slowdown, they should not be penalised for it. By allowing corporates more time to repay the loans, banks will be able to keep their bulging non-performing assets in check.

However,the finance ministry is refusing to relent to the pressure. "I do not see any reason why we should go easy on the NPA norms. They will have to find ways to pare their NPA level," Vasudev said.

The World Bank, International Monetary Fund and global rating agencies like Standard & Poor's have expressed grave concern about the bulging non-performing assets in the Indian banking sector. While the Reserve Bank has pegged the net NPA of the industry at nine per cent, S&P has put the figure anywhere between 35 and 78 per cent. The rating agency has attributed the low NPA figure to the "ever-greening" process, a euphemism for rescheduling of loans.

The Reserve Bank does not allow reschedulement of term loans once the project goes on stream. However, banks are allowed to reschedule term loans if there is a time overrun in implementation of projects. In that case, banks are required to classify the asset as "substandard" in their books for two years even though the repayment of interest and the principle amount ison schedule.

The RBI has recently constituted a committee to look into all aspects of NPA and frame guidelines for loan write-offs. The committee is expected to submit its report by the end of the current fiscal. In a recent directive to all banks, RBI has categorically ruled out any possibility of allowing them offering a moratorium on repayment of loans against the backdrop of recession.

The second Narasimham panel on financial sector reforms has called for tightening of the existing NPA norms. Banks should be required to classify an asset as NPA if the borrower defaults in the repayment schedule for one quarter instead of two quarters which has been the current norm. "This is an international practice. We will have to move towards that. Where is the question of diluting the NPA norms?" Vasudev asked.