RBI to consider restructured loans as NPLs come April '15
Getting loans from banks is all set to become tougher if a company has defaulted. The RBI is preparing to almost obliterate restructuring of loans from 2015. Restructured loans will be considered non-performing loans (NPL) starting April 2015.
February 01, 2013 / 09:10 IST
Getting loans from banks is all set to become tougher if a company has defaulted. The RBI is preparing to almost obliterate restructuring of loans from 2015. Restructured loans will be considered non-performing loans (NPL) starting April 2015. This will remove any incentive for banks to restructure loans. That is a sea-change considering that for big banks like SBI and PNB, around 10% of the asset book is restructured. CNBC-TV18’s Latha Venkatesh reports
Dealers welcome RBI's move to deepen corp bond mkts It is good news in a sense, in most of the developed countries there is nothing like a restructured loan. If you don’t pay in 90 days you are a bad loan. So either you are a good loan or a bad loan, there are no grey areas. We allowed this concept of restructured loan because of ours being a developing country and the transition to better rules. Now the condition of better rules is here. Largely it is because the international community wants it. If we don’t go that way we will not get those foreign institutional investors (FII) investments. We will not be in the global committee of nations; we will not be a part of G20. We just have to do it sooner or later and the blow is coming. First it came in the form of discussion paper, now it is draft rules and very soon it will be the rule. What is the rule? If you default, you can’t just restructure and call yourself a standard loan, you will be considered non-performing loan (NPL). Which means the first year banks will have to keep a provision of 15 percent, second year 25 percent, third year the entire thing will have to be provided for and that is big. That is one part of the problem.The other thing which will happen much more quickly not wait up to 2015 is existing loans that are restructured, at the moment the provisioning has been raised from 2 percent to 2.75 percent just a few months back. That provisioning will be raised to 3.75 percent from March 2014, and by March 2015 it will be raised to 5 percent. So, even your existing book providing for them will be made much more onerous. Net-net end of good times for corporates, end of good times for bankers as well. If one looks at the big names that have gone into restructuring; Jindal Steel, Essar Steel, Ispat, all those companies were restructured loans in 2003. Right now, the big boy Suzlon Energy all these have come under restructured. So, it is time to shape up that is what the Reserve Bank of India (RBI) is saying. Two years is all you get. However, one caveat infrastructure companies will be given more leeway if their date of commencement is pushed back for reasons beyond their control. 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!
