The Reserve Bank of India has asked banks to make 25 percent provisions against their exposure to the debt-laden construction and cement firm Jaiprakash Associates, Jaypee Group's flagship company, sources told CNBC-TV18.
The Delhi-headquartered firm was not brought under the RBI’s asset quality review undertaken in 2015 for the October to December period. Therefore, this remains a standard asset or a special mention account with several banks.
The country’s largest bank, State Bank of India, and biggest private sector lender, ICICI Bank, are among the major lenders to Jaiprakash Associates.
Among other banks, Yes Bank and IndusInd Bank, which declared their financial results on Wednesday, made provisions worth Rs 228 crore and Rs 122 crore against the company’s loan accounts in their respective books.
Yes Bank has an exposure of Rs 911 crore while IndusInd has lent Rs 500 crore to the infrastructure company.
Incidentally, Yes Bank CEO and MD Rana Kapoor mentioned in the post results press conference that the company is currently servicing its interest payments.
Financial services firm Credit Suisse had said in February last year that Jaiprakash Associates had failed to earn enough to cover its interest payments for 11 consecutive quarters.
While most public sector banks have already provided 25 percent provisions against their loans to Jaiprakash Associates, RBI is said to be in discussion with banks on status of the company’s loan Accounts.
The banking regulator seems concerned about deviations from the prescribed norms in banks’ NPA recognition and provisioning. And hence from FY18, banks will need to provide new disclosures where the shortfall in provisions as per RBI norms exceeds 15 percent of the reported net income and/or there is 15 percent difference between the reported Gross NPAs and RBI-assessed Gross NPAs.
Jaiprakash Associates was grappling with a consolidated debt of about Rs 58,250 crore as of March 31, 2016, which is more than what the group can service, prompting the company to sell assets to lighten the load.
Since September 2013, Jaiprakash has sold about Rs 33,380 crore worth of cement and power plants.
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