March 18, 2018

Allahabad Bank posts Rs 1263.79 cr net loss in Q3

15 February 2018, 04:26 | Melvin Schneider

Bank will benefit from RBI's move on restructured loans: Bank of India

Public sector banks have reported nearly Rs 19,000 crore of losses in October December 2017 owing higher provisioning for bad loans

A senior SBI official told DNA Money, "Not many loans are remaining in these schemes for the bank".

India's central bank late on Monday tightened its rules around bank loan defaults, seeking to push more large loan defaulters toward bankruptcy courts and abolishing half a dozen existing loan-restructuring mechanisms, in its latest bid to accelerate resolution of the bad loans problem at Indian banks.

Rajeev Kumar, the top government bureaucrat overseeing the banking sector, said the new rules will impact 2-3 percent of banks' loan books, while provisions could rise a "little", financial news service NewsRise reported. As a result, they will be forced to go the government. "The revised norms are a more transparent system for resolution", he said.

"Lenders shall continue to pursue such cases as per the earlier instructions. The home page of the fake website also contains a provision for "Bank verification with online account holders" which appears to have been created with a fraudulent intent of obtaining personal and confidential banking details of customers of banks", RBI stated in a release.

Analysts said the new norms could see banks reporting more non-performing assets (NPAs) in the coming quarters. Most of these loans belong to the infrastructure sectors including roads, telecom, power and ports and are under the plans such as strategic debt restructuring and sustainable structuring of stressed assets. "Even without a joint lenders' forum (JLF), bankers can meet to set up a resolution plan".

Under the new rules, banks must report defaults on a weekly basis in the case of borrowers with more than Rs 5 crore of the loan. In absence of the minimum requisite level of credit opinion, the resolution plan will not deemed to be implemented, and banks will need to initiate bankruptcy proceedings against these borrowers under Insolvency and bankruptcy Code (IBC), 2016.

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Market experts believe the new measures by the RBI would lead to early recognition of bad loans, leading to higher provisioning expense that could subsequently hit their profits at least in the near term. The gross NPAs of public sector and private sector banks as on September 30, 2017, were Rs 7,33,974 crore, Rs 1,02,808 crore respectively. The notification further said all accounts, including those where any of the schemes have been invoked but not yet implemented, will be governed by the revised framework.

If the resolution plan entails restructuring of the loans, the standard loans will get classified as NPAs.

At present, there are three such types of special mention accounts, if principal or interest is overdue between one and 90 days.

Board approved policies are to be put in place for resolution of stressed accounts along with timelines, said Sapan Gupta, Partner, Shardul Amarchand Mangaldas.

The resolution plan (RP) may involve any actions/plans/ reorganisation including, but not limited to, regularisation of the account by payment of all over dues by the borrower entity, sale of the exposures to other entities / investors, change in ownership, or restructuring.

It has also warned of strict action if the timelines are not followed by lenders. It further said all lenders will be required to submit Central Repository of Information on Large Credits (CRILC)- Main Report to the Reserve Bank on a monthly basis effective April 1, 2018.

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