Pressure on RBI to ease NPA norms
The finance ministry is in discussion with the Reserve Bank of India (RBI) for relaxation of norms regarding stressed asset resolution that was announced in February. This follows representation by large banks to the ministry officials as they worry about pressure on profitability due to the revised guidelines.
RBI’s mandate to implement a resolution plan even if the loan is overdue for a day, has in particular upset banks. RBI had also mandated that if the solution plan was not implemented within 180 days, bankruptcy process should be initiated. Banks have to make 50% provision for accounts that are referred to the NCLT for insolvency proceedings.
According to bankers, the conditions of the resolution plan, as laid down by RBI, are so stringent that it will increase provisioning requirement. That is, banks have to set aside more capital. RBI had issued a circular on February 12 outlining a new mechanism for stressed asset resolution which could result in rise in provisioning requirements.
According to bankers, the Indian Banks’ Association has made a recommendation to the central bank to revise the guidelines. Separately, a group of bank chief executives have also met finance ministry officials to highlight their concerns.
“The finance ministry understands the challenge that we will face if the SMA 0 norms are implemented. We have requested to conveyed our concerns to the banking regulator,” said the chief executive of a public sector bank.
According to RBI norms, if the principal or interest is overdue for one day to 30 days, the account is identified as Special Mention Account – 0 (SMA-0) category. If it is overdue for 30 to 60 days, it comes under the SMA-1 category and if it is overdue for more than 60 days, till 90 days, it falls under SMA-2 category. If a loan is not repaid for more than 90 days, it is classified as non-performing asset (NPA).
“It is quiet possible that customers are facing some cash flow issues and it is a genuine problem. So, the directive to start resolution in one day is a bit stringent one,” said another banker.
According to bankers, another mandate that the borrower has to bring in 20% of the due before the account is upgraded, is also a difficult requirement, which has scope for some relaxation.