Banks may have to step up provisioning by 5% on revamped loan accounts

Banks may have to make a higher provisioning of 5 per cent in respect of new restructured standard loan accounts with effect from April 1.

This is as per the Reserve Bank of India’s draft guidelines on restructuring of advances by banks and financial institutions.

The higher provision requirement could lead to banks and financial institutions to turn more circumspect in considering restructuring of standard loan accounts.

In the case of the stock of restructured standard accounts as on March 31, 2013, the central bank wants banks to step up provisioning in a phased manner — 3.75 per cent — with effect from March 31, 2014 (spread over the four quarters of 2013-14) and 5 per cent — with effect from March 31, 2015 (spread over the four quarters of 2014-15).

In November last, the central bank had increased the provision on restructured standard accounts to 2.75 per cent from 2.00 per cent.

In view of the current domestic macroeconomic situation, as also global situation, the central bank, in its draft guidelines, said it will keep in abeyance, say for a period of two years, the proposal to do away with regulatory forbearance regarding asset classification, provisioning and capital adequacy on restructuring of loan and advances.

The extant asset classification benefits in cases of change of date of commencement of commercial operations of infrastructure project loans may be allowed to continue for some more time in view of the uncertainties involved in obtaining clearances from various authorities and importance of the sector in national growth and development.

Promoters’ sacrifice and additional funds brought by them for restructuring should be a minimum of 15 per cent of banks’ sacrifice or 2 per cent of the restructured debt, whichever is higher.

Promoters’ personal guarantee should be obtained in all cases of restructuring and corporate guarantee cannot be accepted as a substitute for personal guarantee.

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