Money & Banking

NPAs: Banks get 2 years to spread loss on sale of assets

Our Bureau Mumbai | Updated on January 23, 2018 Published on May 21, 2015

To encourage banks to purge their books of bad loans, the RBI has extended incentives, whereby the shortfall arising in cases where the sale value is lower than the net book value can be spread over two years, for sale of assets up to March 31, 2016.

Earlier, this facility of spreading over the shortfall was available for bad loans sold up to March 31, 2015.

This is, however, subject to necessary disclosures in the Notes to Accounts in the Annual Financial Statements of banks.

The move to extend the incentive comes in the backdrop of continued pressure of bad loans in the banking system, especially public sector banks.

Thus, if the sale of a bad loan to an asset reconstruction company is being done at a price below the net book value (i.e., book value less provisions held), the shortfall in recovery can be provided for over a two-year period.

Credit rating agency Crisil has assessed that in the current fiscal, gross non-performing assets (NPAs) of Indian banks will edge up by 20 basis points to 4.5 per cent of advances — or rise by ₹60,000 crore to ₹4 lakh crore. Further, weak assets are expected to stay high at 6 per cent (₹5.3 lakh crore).

Published on May 21, 2015
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