Indian Bank’s quick calculations have shown that the new provisioning norms for restructured loan accounts that the RBI is bringing into force, will cause the bank to make additional provisions of just Rs 80 crore, over the next two years.
The bank already has excess provisions and will therefore not feel any burden, Mr T.M. Bhasin, Chairman and Managing Director, Indian Bank, told a press conference on Monday.
‘Restructured loans’ are those loan accounts the terms of repayment for which have been revised to help the borrower. There has been a rise in the ‘restructured loan book’ of most banks. As for Indian Bank, its restructured book was at Rs 9,918 crore as on end-March 2012.
Last week, a Working Group set up by the RBI recommended a slew of prudential measures relating to dealing with restructured accounts. Principally, the recommendations require banks to increase provisioning requirement on existing standard restructured loans from the present 2 per cent to 5 per cent in a phased manner over a period of two years. For new standard restructuring the provision of 5 per cent would have to be made immediately.
A restructured account may also be upgraded to ‘standard’ if the payment is satisfactory, judging by a certain prescribed parameters.
A report of Angel Research issued today said that the guidelines, if and when implemented, would impact mid-PSU banks the most, with an average profit before tax impact for 2012-13 and 2013-14 of 5.2 per cent and 4.4 per cent, respectively.
Within the mid PSUs, Central Bank and Indian Overseas Bank would be worst affected owing to their higher outstanding restructuring book. Least affected PSU banks would be State Bank of India and Bank of Baroda, while there would be negligible impact on new private banks.
As of now, irrespective of prudential provisioning requirements, we are already building in higher provisioning expenses for PSU banks, which incorporates the impact of slippages from restructuring, the report said.
But Indian Bank says it will not be affected much. Mr Bhasin said that of the Rs 9,918 crore, over Rs 5,500 crore would be ‘out of the book’ and the fresh provisioning required to be made would be Rs 80 crore.