Banks to provision 15% for 2nd recast of MFI loans: RBI

RBI Deputy Governor Anand Sinha today said that if banks were to restructure loans of troubled micro finance institutions (MFIs) for the second time, they will not get any benefits in terms of provisioning.

Also read: Can micro finance institutions succeed in banking world?

"We do not stop second restructuring. But what we say is that asset classification benefit will not be available to banks. The RBI does not stand in the way of second time debt restructuring," Sinha said on the sidelines of a Ficci event on financial inclusion here.

The central bank prescribes that if a borrower, who is already into CDR (corporate debt restructuring), has to avail of loan recast again, then its banks will have to provide 15 percent of the recast loan amount as provision.

In effect, this means the rescheduled loan will be treated as a bad loan. In first-time CDR, the provisioning requirement is just one-third of this, or 5 percent.

Under a normal CDR process, banks forego their repayment for two years and slash the interest rates.

There have been reports that five heavily indebted MFIs - Bhartiya Samruddhi Finance (Basix), Asmitha Microfin, Spandana Sphoorty Financial, Share Microfin and Trident Microfin, had approached the central bank last month for allowing them to recast their loans for a second time.

However, RBI did not approve their requests. Sinha further said the RBI will soon come out with a discussion paper on banking.

It has been reported that last month the umbrella body of MFIs had moved the RBI seeking permission to recast their loans without they being classified as bad.