RBI asks banks to proactively deal with bad loans menace

Worried over spurt in bad loans, the Reserve Bank today asked banks to pro-actively lead with the problem and improve their credit risk management systems. The RBI has also permitted banks to fund specialized entities which can acquire and turnaround trouble companies. "It has been decided that banks can extend finance to specialised entities established for acquisition of troubled companies subject to the general guidelines..." RBI said in a notification to heads of banks.The lenders should, however, assess the risks associated with such financing and ensure that these entities are adequately capitalised, and debt equity ratio for such entity is not more than 3:1, it said."The Board of Directors of banks should take all necessary steps to arrest the deteriorating asset quality in their books and should focus on improving the credit risk management system," it said.Early recognition of problems in asset quality and resolution envisaged in these guidelines requires the lenders to be proactive, it said, adding, that the lender should also make use of the proposed Central Repository of Information on Large Credits (CRILC).The boards of banks should put in place a system for proper and timely classification of borrowers as willful defaulters or non-cooperative borrowers, it said. Further, boards of banks should periodically review the accounts classified as such, say on a half yearly basis, it added.In a major relief to banks, RBI said it has been advised that if they refinance any existing infrastructure and other project loans by way of take-out financing, even without a pre-determined agreement with other banks or FIs, and fix a longer repayment period, the same would not be considered as restructuring.Such loans should be substantially taken over (more than 50 per cent of the outstanding loan by value) from the existing banks or financial institutions. This will help in reduction of NPA as the re-finance given to infrastructure project will not be classified NPA."With a view to incentivising banks to recover appropriate value in respect of their NPAs promptly, henceforth, banks can reverse the excess provision on sale of NPA if the sale is for a value higher than the net book value to its profit and loss account in the year the amounts are received," he said.Further, it said as an incentive for early sale of NPAs, banks can spread over any shortfall, if the sale value is lower than the net book value, over a period of two years. This facility of spreading over the shortfall would, however, be available for NPAs sold up to March 31, 2015, the RBI notification said. RBI also said that banks will be permitted to sell their NPAs to other banks or NBFCs other than asset reconstruction companies without any initial holding period."With a view to discouraging borrowers or defaulters from being unreasonable and non-cooperative with lenders in their bonafide resolution/recovery efforts, banks may classify such borrowers as non-cooperative borrowers, after giving them due notice if satisfactory clarifications are not furnished," RBI said in a separate notification.Banks will be required to report classification of such borrowers to CRILC. The notification said that in cases of wilful defaulter the provisioning would be at higher rate. "Further, banks will be required to make accelerated provisioning in respect of new loans or exposures to such borrowers as also new loans/exposures to any other company promoted by such promoters or directors or to a company on whose board any of the promoter or directors of this non-cooperative borrower is a director," it said. The provisioning applicable in such cases will be at the rate of 5 per cent if it is a standard account and accelerated provisioning, he said. The list of non-suit filed accounts of Wilful Defaulters (Rs 2.5 million and above) is confidential and is disseminated by RBI among banks only for their own use, it said. These guidelines will be effective from April 1, 2014.