As defaults mount, banks seek easier NPA norms
Aug 12 2012 , Mumbai
Collected from financial Chronicle www.mydigitalfc.com
Saddled by growing stock of stressed loans, banks have asked the Reserve Bank of India (RBI) to soften its stand on the restructuring of bad assets while issuing its final guidelines. In a feedback to the regulator on the recommendations of the Mahapatra committee, which has suggested stiffer rules to deal with restructuring of non-performing assets (NPAs), banks have requested that accounts that have been restructured once should be considered as standard.
The total restructured book of banks at the end of March was Rs 2,18,068 crore, almost 4.68 per cent of total outstanding bank credit of Rs 46,55,271 crore, according to RBI data.
The central bank at present provides a regulatory forbearance, which allows banks to classify an account as standard even if it is restructured. However, the RBI committee to review the existing prudential guidelines on restructuring of advances by banks headed by its executive director B Mahapatra has recommended that this regulatory forbearance be lifted.
FC had reported on June 14 that RBI might make it tough for banks to restructure corporate loans unless there were valid reasons pointing to factors beyond the control of company managements. RBI was of the view that banks must not provide additional facilities to companies with clear case of board-level mismanagement, as per recommendations of an internal committee under its executive director B Mahapatra.
Banks regularly restructure stressed assets so that they do not have to classify them as NPAs (non-performing assets) and make higher provisioning. RBI allows all accounts, except commercial real estate loans, to be classified standard if it is being restructured once. But once restructured, they are classified NPAs if they come up for restructuring a second time. Restructuring means making a change in the terms and conditions like extending the tenure of the loan or it could also mean change in interest rate.
Banks have also asked RBI not to tighten the provision, asking for the current norms to continue. The working group suggested the provisioning on restructured accounts be increased from the present two per cent to five per cent of the total loan outstanding for all-fresh restructuring. For all older restructuring cases, the provision should gradually be increased to 3.5 per cent of the total loan outstanding in the first year of adoption of the recommendation, and five per cent by the second year.
The chairman of a large public sector bank told Financial Chronicle that the present recommendations were too stiff and nowhere in the world do banks have such high provisioning. "We have asked RBI to let the existing requirement prevail, which means a provisioning of two per cent of loan outstanding, once an account is restructured." He did not want to be named.
The committee has also recommended stiffer guidelines on the net present value of a loan once it is restructured and more clarity on existing guidelines. Banks are of the view that the calculation of the net present value of a loan should be less stringent.
The total restructured book of banks at the end of March was Rs 2,18,068 crore, almost 4.68 per cent of total outstanding bank credit of Rs 46,55,271 crore, according to RBI data.
The central bank at present provides a regulatory forbearance, which allows banks to classify an account as standard even if it is restructured. However, the RBI committee to review the existing prudential guidelines on restructuring of advances by banks headed by its executive director B Mahapatra has recommended that this regulatory forbearance be lifted.
FC had reported on June 14 that RBI might make it tough for banks to restructure corporate loans unless there were valid reasons pointing to factors beyond the control of company managements. RBI was of the view that banks must not provide additional facilities to companies with clear case of board-level mismanagement, as per recommendations of an internal committee under its executive director B Mahapatra.
Banks regularly restructure stressed assets so that they do not have to classify them as NPAs (non-performing assets) and make higher provisioning. RBI allows all accounts, except commercial real estate loans, to be classified standard if it is being restructured once. But once restructured, they are classified NPAs if they come up for restructuring a second time. Restructuring means making a change in the terms and conditions like extending the tenure of the loan or it could also mean change in interest rate.
Banks have also asked RBI not to tighten the provision, asking for the current norms to continue. The working group suggested the provisioning on restructured accounts be increased from the present two per cent to five per cent of the total loan outstanding for all-fresh restructuring. For all older restructuring cases, the provision should gradually be increased to 3.5 per cent of the total loan outstanding in the first year of adoption of the recommendation, and five per cent by the second year.
The chairman of a large public sector bank told Financial Chronicle that the present recommendations were too stiff and nowhere in the world do banks have such high provisioning. "We have asked RBI to let the existing requirement prevail, which means a provisioning of two per cent of loan outstanding, once an account is restructured." He did not want to be named.
The committee has also recommended stiffer guidelines on the net present value of a loan once it is restructured and more clarity on existing guidelines. Banks are of the view that the calculation of the net present value of a loan should be less stringent.
Banks also want status quo on time limit prescribed for companies that go into the CDR scheme. The time limit for companies to be in the CDR cell was seven years for non-infrastructure accounts and 10 years for infrastructure accounts, but the committee was of the view that this time limit was too long, and recommended five years and eight years, respectively.
Now FM Proposes 7% Interest on CRR to SAVE Sinking Public Sector banks AND to Increase Profits of Private Banks
Finance ministry wants RBI to pay 7% interest on CRR deposits
NEW DELHI: The finance ministry has suggested that the Reserve Bank of India pay 7% interest on the mandatory deposits parked with it by banks, one among several measures proposed to lower rates even if the central bank does not ease the monetary policy.
Lion's Share of Fresh Loans Goes to Rich AND BIG Corporate Houses
The main purpose of nationalisation of banks by late Indira Gandhi was to help poor and middle class who were exploited by local moneylenders.For last four decades and more Ministry of Finance and Reserve bank of India have been harping on lending to Priority Sector and impressing upon bankers to help weaker section.More and more thrust is always given on lending to Farm sector to boost agricultural production and in turn help common men who are suffering from abnormal price rise due to scarcity of food items in the market and due to resultant heavy black marketing of products and exorbitant higher prices.
But unfortunately there is no desired growth in lending under priority sector in real field . Though target set for lending under Priority sector by RBI and MOF is always achieved by manipulation of figures but the contribution in GDP from agricultural sector has been consistently coming down . It is also pity that even industrial production is not showing phenomenal growth despite huge lending to corporate.
Padma Shri Award to Willful Defaulter?
Should a wilful defaulter be awarded “Padma Shri” by the government?
Can the government give the Padma award to a wilful defaulter, as it came out in the case of Kinetic group chairman Arun Firodia, questions an RTI activist
NOT only NPA But Growth of Frauds Is Also With Alarming Speed
CBI developing database to curb banking frauds
Lion's Share of Fresh Loans Goes to Rich AND BIG Corporate Houses
The main purpose of nationalisation of banks by late Indira Gandhi was to help poor and middle class who were exploited by local moneylenders.For last four decades and more Ministry of Finance and Reserve bank of India have been harping on lending to Priority Sector and impressing upon bankers to help weaker section.More and more thrust is always given on lending to Farm sector to boost agricultural production and in turn help common men who are suffering from abnormal price rise due to scarcity of food items in the market and due to resultant heavy black marketing of products and exorbitant higher prices.
But unfortunately there is no desired growth in lending under priority sector in real field . Though target set for lending under Priority sector by RBI and MOF is always achieved by manipulation of figures but the contribution in GDP from agricultural sector has been consistently coming down . It is also pity that even industrial production is not showing phenomenal growth despite huge lending to corporate.
But unfortunately there is no desired growth in lending under priority sector in real field . Though target set for lending under Priority sector by RBI and MOF is always achieved by manipulation of figures but the contribution in GDP from agricultural sector has been consistently coming down . It is also pity that even industrial production is not showing phenomenal growth despite huge lending to corporate.
Padma Shri Award to Willful Defaulter?
Should a wilful defaulter be awarded “Padma Shri” by the government?
Can the government give the Padma award to a wilful defaulter, as it came out in the case of Kinetic group chairman Arun Firodia, questions an RTI activist
NOT only NPA But Growth of Frauds Is Also With Alarming Speed
CBI developing database to curb banking frauds
WEDNESDAY, AUGUST 15, 2012
Restructured Loan Growth is More Than Credit Growth
Restructured loans grow at faster pace than credit growth: Chakrabarty Growth of over 40% seen between March 2009 and March 2012
Collected from The news paper Business Standard
MUMBAI, AUG. 15:
The rate of growth in restructured advances of banks has been faster than the growth in total gross advances between March 2009 and March 2012, according to a top Reserve Bank of India official.
In the said period while total gross advances of the banking system grew at a compound annual growth rate of less than 20 per cent, restructured standard advances grew over 40 per cent, said K.C. Chakrabarty at a recent seminar on corporate debt restructuring.
The proportion of restructured standard advances to gross total advances increased from 3.45 per cent in March 2011 to 4.68 per cent in March 2012 (MY Comments In fact it is much more if the accounts which are restructure but not reported are also added to it provided CBI or SIT look into it vary deeply and seriously and honestly ).
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