RBI tightens restructuring norms; some relief for projects
According to ICRA, the tighter norms for restructuring and better aligned disclosure standards prescribed by the RBI are likely to increase transparency and enable investors and analysts to assess the financial health of the system with greater accuracy.
June 03, 2013 / 17:02 IST
The Reserve Bank of India (RBI) has, on May 30, 2013, issued final guidelines on asset classification and provisioning norms for restructured accounts.
New guidelines are likely to reduce the level of restructured advances as well as flow of restructured advances for most banks because of special dispensation to projects (infrastructure, Commercial Real Estate and other projects) till the time these units declare DCCO. Additionally, reduction in specified period to one year of satisfactory performance of standards restructured accounts from earlier two years could also facilitate faster upgradation of non stressed restructured accounts.As a result of these relaxations, vulnerable accounts (Gross NPAs+ restructured accounts) in the system are likely to drop further in June 2013 from estimated 8.2 percent-8.5 percent as on March 31, 2013 (9.6 percent as on December 31, 2012). Beyond June 2013, the likely trajectory that the vulnerable accounts take would also hinge on the economic environment as well as the resolution of fuel availability issues in power generation and structural reforms in power distribution. It is estimated that power sector exposures would constitute a large chunk of restructured advances in the short to medium term (over 30 percent). Moreover, stringent conditions for restructuring (like shorter viability period, higher promoter contribution, personal guarantees of promoters) with immediate effect and abolition of regulatory forbearance on asset classification for restructured accounts from 2015-16 would make restructuring more difficult. Therefore, unviable exposures would directly slip into NPA category. As for the likely impact of the guidelines on non-performing assets (NPAs), there could be a steep increase in the reported NPA percentage from 3.3 percent as on March 2013 to as high as 5.5-6.5 percent as in June 30, 2015. This is so because regulatory forbearance on classification of old restructured advances (except for project loans yet to achieve commencement of operation) would cease by April 1, 2015. However, increase in reported Gross NPA percent would not have a material impact on the credit profile as vulnerability would remain the same. RBI has increased provisioning on old restructured accounts to 3.5 percent as on March 31, 2014, 4.25 percent as on March 31, 2015 and further to 5 percent as on March 31, 2016, as against the current 2.75 percent. While these norms would have otherwise necessitated an increase in credit provisioning over the next two years, ICRA expects a reduction in restructured advances to restrict the incremental provisioning requirement on this count. As for 2013-14, if restructured advances get reduced by 20 percent from March 2013 levels, there would be no impact on P&L of banks in FY14. However, medium term profitability is expected to get impacted by 1-2 bps of average total assets on account of higher provision on restructured advances.The tighter norms for restructuring and better aligned disclosure standards prescribed by the RBI are likely to increase transparency and enable investors and analysts to assess the financial health of the system with greater accuracy. Besides, the new guidelines would facilitate higher risk awareness among lenders and make restructuring more difficult for unviable projects. ICRA however believes that the asset classification and provisioning norms should be consistent across various intermediaries, including banks and non-banking finance companies (NBFCs).Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
