Raise banks' provisioning to recast loans: Sinha

 

Banks’ provisioning requirements for restructured loans, classified as standard assets, will have to be increased, but the timing of such a move could be reconsidered, Reserve Bank of India Deputy Governor Anand Sinha said on Monday. RBI has proposed a five per cent provisioning for all new standard restructured loans of banks with effect from April 1 in its draft guidelines issued on Thursday.

 

It also has proposed a phased increase in provisioning on existing restructured loans to five per cent by March 2015.

“What we have issued are the draft guidelines. So let us what the response is. The timing is something which can be looked into,” Sinha said. “But the fact is that provisioning will have to be increased.” Earlier, banks had to provide just two per cent for restructured loans but RBI raised the provisioning by 75 basis points to 2.75 per cent in its second-quarter review of monetary policy on October 30, pending issue of final norms on the issue.

According to the new draft norms released Thursday, banks and financial institutions will have to achieve 3.75 per cent provisioning on existing standard restructured loans by March 31, 2014 and provide five per cent for all recast loans by March 31, 2015.

Sinha said the new provisioning requirements might put pressure on banks, but the central bank will take into consideration stakeholders’ views before finalising the guidelines.

The RBI has called for comments on the draft guidelines on or before February 28.

Sinha also said RBI was considering a move to cut the banks’ held-to-maturity ratio.

Separately, RBI Deputy Governor H R Khan also had told NewsWire18 over the weekend that the central bank was in dialogue with market participants over a possible move to align the held-to-maturity ratio with the statutory liquidity ratio. Currently, the held-to-maturity ratio is 25 per cent and the statutory liquidity ratio is 23 per cent.