Extend restructuring leeway till April 2016: Banks to RBI

Bankers have urged the Reserve Bank of India (RBI) to continue regulatory forbearance on loan restructuring for another year. As of now, the forbearance is scheduled to end on April 1, 2015. In case RBI sticks to this deadline, the banking system's gross non-performing assets (NPAs) will rise to 10 per cent from four per cent in March this year.

Public sector banks account for the majority of stressed assets in the banking system.

Currently, banks have to make lower provisioning for standard restructured advances - five per cent, compared with 15 per cent for sub-standard assets (the first level of NPAs - when interest or principal is due for more than 90 days).

RBI had mandated after April 2015, banks had to treat all restructured standard advances as NPAs and make provisions accordingly.

At an interaction with the RBI governor and deputy governors after the recent monetary policy review, bankers had said a rise in NPAs had already put pressure on their profitability. They added if the new norms kicked in from April 2015, it would add pressure on them at a time when lenders, especially public sector ones, would need a huge amount of capital to comply with Basel-III norms.

"We have requested the same level of provisioning for standard restructured advances be continued for at least a year. If the higher provisioning norms start from April 2015, it will put further pressure on profitability," said the chairman and managing director of a public sector bank who attended the post-policy interaction.

Following a 2012 report by RBI Executive Director B Mahapatra on restructuring of advances, the central bank decided banks wouldn't be given regulatory leeway for restructuring debt and all such recast would be treated as NPAs from April 1 2015.

As of March this year, stressed assets - NPAs and restructured advances - as proportion of gross advances, stood at 9.8 per cent, against 10.2 per cent in September last year. At 11.7 per cent of overall advances, public sector banks recorded the highest stressed advances, followed by old private banks (5.9 per cent).