The Indian Banks’ Association has written to the Reserve Bank of India requesting relaxation in its revised framework for resolution of stressed assets, emphasising that the banking regulator’s zero tolerance towards even a day’s delay in loan repayment could seriously jeopardise lending to the infrastructure sector, which is a priority area for the government.
While banks have no issue in reporting an account to the Central Repository of Information on Large Credits (CRILC) even if there is a day’s delay in loan repayment, they want the account resolution process involving restructuring to kick-in only after 60 days (and not on the first day of default).
The reason for seeking the above mentioned relaxation in the revised framework for resolution of stressed assets, which was announced on February 12, is that infrastructure projects typically face cash flow issues or delays in realising their receivables.
“Some companies generally default (in principal or interest payment) by 30-40 days but then they regularise their loan account. So, 60 days ‘curing’ period should be given to them. If on the 60th day they are not able to pay and regularise the account then only restructuring should start,” said a top public sector banker.
Bankers fear that if the restructuring process starts on day 1 of default then they will have to immediately downgrade the account to the non-performing asset (NPA) category and this will have provisioning implications.
While the RBI has done away with all its instructions dealing with resolution of stressed assets and replaced them with the revised framework for resolution of stressed assets, bankers feel there is a need for forbearance, especially in cases where an account has been taken up for restructuring under the erstwhile Strategic Debt Restructuring (SDR) scheme.
“Suppose under the SDR scheme, lenders have already converted the debt of a stressed company into equity. Earlier, post-conversion, they had 12 months for change of management under the scheme. But the RBI has suddenly withdrawn all schemes relating to resolution of stressed assets with effect from March 1 and the accounts will become NPA,” said another banker.
Seek forbearance
So, in the case of accounts where restructuring has already been initiated under the earlier stressed asset resolution schemes, banks have sought forbearance of 180 days to complete the restructuring process.
“We are seeking this forbearance as under the revised framework for resolution of stressed assets when an account becomes NPA, upgrading it is almost impossible.
“Under the new guidelines, at least 20 per cent of the principal amount has to be repaid before an account can be upgraded. So, that will take at least 3-4 years. So, upgrading an account is a tall order,” said the banker quoted above.
Growth projections
Referring to the Economic Survey’s GDP growth projection of 7-7.5 per cent in 2018-19 and the Finance Minister’s Budget speech wherein he said the country is now firmly on course to achieving high growth of 8 per cent plus, bankers say these projections will become a reality only if banks support the infrastructure sector. For this, the regulator needs to be a little flexible with its guidelines, they added.
“Infrastructure projects face inherent risk of delays. Because they have long gestation, anything can happen. Many times, the delay is from the government’s side (such as delays in giving statutory approvals) and not from the promoter’s side.
“So, if the RBI doesn’t have tolerance even for this then infrastructure lending is going to become a bit risky for banks. If banks go slow on lending due to the stringent RBI guidelines, the government may face a serious issue in financing the infrastructure sector,” explained the top public sector banker.
According to the Economic Survey, around $4.5 trillion worth of investments is required by India till 2040 to develop infrastructure to improve economic growth and community wellbeing.
The current trend shows that India can meet around $3.9 trillion infrastructure investment out of $4.5 trillion.