Banks seek forbearance on restructured loan provisions

In view of mounting corporate debt, banks on Tuesday sought forbearance in making provisions for restructured loans

With the economic slowdown hitting companies for the third year in a row, the pipeline of restructured loans remains high. The Reserve Bank of India (RBI) has mandated banks to set aside five per cent for assets, which are restructured after June 1. The requirement is high and difficult to absorb. Therefore, bankers have sought a re-look in the context of stressed situation, said B A Prabhakar, chairman and managing director of Andhra Bank.

RBI governor D Subbarao indicated the central bank will study the demands and take a decision accordingly.

Banks have also sought a change in the rule for provisioning made for restructured assets that are treated as sub-standard assets. Bankers flagged these issues during their interaction with RBI top officials for the first quarter review.

Punjab National Bank chairman and managing director K R Kamath said, “You have provisioning requirement for restructured assets, you have provisioning requirement for sub-standard assets. You can’t have provisioning for sub-standard restructured assets by combining both. Either it is a sub-standard asset or restructured asset,” he added.

Meanwhile, State Bank of India chairman Pratip Chaudhuri said that according to RBI, if a project has a time overrun of one-year and the loan is restructured within that period, then it remains standard asset. Chaudhuri said this dispensation should now be allowed for loans restructured in 2011 or 2010 which were classified NPAs because they missed the date of commercial operation. RBI’s assurance that it will take view is significant because earlier, the central bank used to be pretty strict that anything that has missed the date of commercial operation is an non-performing loan.