Restructuring of loans will become tougher, but not just yet.
A Working Group of the Reserve Bank of India has recommended doing away with the relaxations given on loan classification and the amount of capital that banks have to set aside when a loan is recast.
Technically, this is called regulatory forbearance given to recast loans.
The RBI is seeking to align prudential guidelines on restructuring of loans with international best practices.
Bank stocks took a beating after the draft guidelines on loan restructuring were unveiled. The BSE Bankex fell by 156 points (or by 1.28 per cent).
But in view of the difficult macroeconomic situation, the RBI group has suggested that banks can be asked to adopt the global best practices on loan restructuring after two years.
In the run up to this, the RBI may tighten provisioning norms for banks; restrict rollover of short-term loans to no more than 3 times, and set time limit for restructuring.
Further, banks have to ensure that borrowers chip in with higher equity contribution; get promoters ‘skin in the game’ or commitment to restructuring by stipulating personal guarantee; and be flexible with the ‘recompense’ clause.
Internationally, loans are generally treated as impaired/downgraded on restructuring.
However, in India standard advances can be restructured without their attracting the the impaired tag.
RBI data show that the restructured standard assets at Rs 97,834 crore in March 2010 and Rs 1,06,859 crore in March 2011 were higher than the gross non-performing assets (NPAs) of the banking system at Rs 81,816 crore and Rs 94,088 crore respectively during the respective period.
Keywords: Restructuring loans, tougher, doing away, relaxations, loan classification, loan recast
Comments:
IF viable loan accounts gets restectured there is no risk for Banks, however if loan accounts are 'forced restructured'such accounts shall become trouble shooter for Banks in near future.
Thre are instances where borrower has paid some instalment after borrowing from market,Banks have reschedule instalment payment table, however still loan is restructured ,temporary overdraft given just to reapy loan instalments in arrears & account is restructured.There is no security with borrower still account is restructured.
Banks have to accept challenges, & come out successful which shall make Bank innovative,dynamic,result orientive.
Need of the hour that Banks should erify end use of fund,borower's income-liability, COs audit report so to get correct picture.
Making provision for such loans shall help Banks in crisis,
The spirit of restructuring is to enable the borrower to repay loans
based on his liquidity situation which undergoes a change owing to
factors beyond his control like natural calamities or sudden change in
the policy pertaining to his sector which could not be foreseen ...In
any case a bank cannot use this to give a better picture of their
loan assets.RBI is right to stipulate stricter norms for ensuring a
healthy banking system which it is so far.
sir, any borrower is not interested to spoil the images to showing a account as N.P.A & CIBIL Subject to some changes is going on in the life ie.Business environment changes, Crises,Slowdown & Harsh Action From the concern dept. Request to remove above both the act.
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