Banks classify loans that have remained unpaid for 61-90 days as special mentioned account 2 (SMA-2) that has the high risk of slipping into NPA.
The Reserve Bank of India (RBI) Monday announced the closure of the multiple restructuring schemes. It revised the stressed assets framework asking banks to resolve defaults within 180 days. According to a Business Standard report this could translate to over Rs 2.8 lakh crore of stressed loans running the risk of turning bad.
The central bank directed banks to immediately identify the defaults and make disclosures every Friday to the CRILC (Central Repository of Information on Large Credits) starting from February 23 where loans have remained unpaid for 61-90 days.
Currently, lenders classify loans that have remained unpaid for 61-90 days as special mentioned account 2 (SMA-2) that has the high risk of slipping into NPA.
The RBI Financial Stability Report states the outstanding loans of scheduled commercial banks is at Rs 80 lakh crore as on September 2017. Of this amount, 3.5 percent of bank loans (amounting to Rs 2.8 lakh crore) have been classified as SMA-2, and now run the risk of having to be classified as NPA over the next few quarters.
Karthik Srinivasan, Group Head, Financial Sector Ratings, ICRA said in a statement, ‘while in the short-term this will increase the pain for the borrowers as well the lenders, however the early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in long-term.’
As per the RBI revised framework for accounts with an exposure of Rs 2,000 crore or more, lenders must ensure a resolution plan is in place within 180 days after a ‘default’. If resolution plan is not implemented within that timeframe then the account must be referred to the insolvency courts within 15 days.The gross NPA advance ratio of banks have jumped to 10.2 percent in September 2017 from 9.6 percent in March 2017 and may hit 11 percent by September 2018 due to asset quality concerns.