RBI plans new NPA restructuring norms

RBI plans new NPA restructuring norms
ENS ECONOMIC BUREAU

MUMBAI, FEB 14: In a move which will help commercial banks to reduce the level of non-performing assets (NPAs) and facilitate corporates to evergreen (keep sticky loans out of NPA list and avoid repayment) their NPAs, the Reserve Bank of India (RBI) will soon issue guidelines to commercial banks and financial institutions to reschedule sticky debt owed by corporates.

With NPA levels rising year after year, RBI officials said the central bank would issue a circular soon that would facilitate corporates to reschedule their outstanding bad loans. The issue of sticky debt restructuring was discussed in a meeting between bankers and the RBI deputy governor SP Talwar in Mumbai on Wednesday.

According to bankers, the new guidelines will help bring down the level of non performing assets in the banking sector and aid corporates in restructuring their outstanding debts. These restructured loans are not likely to be treated as sub-standard loans and provisioning will not be required to be made as per current rules, they said, adding, "banks will be allowed to restructure only those loans where companies faced genuine difficulties but will not be applicable to wilful defaulters."

According to the central bank, gross NPAs in the banking sector rose toRs 60,841 crore ($13.05 billion) at end-March 2000 from Rs 58,722 crore in the year-ago period with state-run banks accounting for the lion's share. Gross NPAs of state-run banks rose to Rs 53,294 crore in 1999/00 from Rs 51,710 crore in the earlier year. NPAs of ten leading institutions (including IDBI, ICICI and IFCI) have reported a rise of 11.89 per cent, or Rs 1,929 crore, to Rs 18,146 crore during the year ended March 2000 from Rs 16,217 crore last year.

However, a section of bankers felt corporates are likely to exploit the proposed revamp plan. "There are many loopholes in the system. One can expect a host companies to jump on to the band-wagon to evergreen their NPAs and avoid repayment. Loan reschedulements have already become joke. The idea behind the new rules seems to be aimed at reducing the NPA levels. Will it really help?" said a banker.

Last week, ailing textile firm Arvind Mills approved a debt restructuring plan which included a debt buyback plan, lower interest rates on the remaining debt and set in place a monitoring and control mechanism by lenders. Jindal Vijaynagar is also looking at debt restructuring.

Talwar, it is learnt, told bankers to strenghten their balance sheet and make more provision towards assets that had turned bad. Last month, Talwar said that Indian banks has to make giant strides towards adopting international accounting practices and indicated that prudential norms may be tightened.

Indian state-run banks are not known to be transparent while making provisions for sticky loans, but recently the central bank has tightenedrules and hinted it will hike capital adequacy ratio to 10 percent from the current nine.

Talwar also told bankers on Wednesday to take advantage of a one-time settlement system for loans that have turned bad before the deadline expires on March 31, 2001. The system was introduced sometime last year.

FIs had resorted to large scale loan reschedulements, interest waiver and bail-out packages in the last two years. "This was beneficial to both the FIs and borrowers. While FIs can report a smaller amount as NPAs, borrowers (mostly big corporate houses) can avoid their names in the NPA list," said a former RBI official, adding, "had FIs included bail-outs and reschedulements, the NPA figure would have gone up further."