Loan recast has gone "out of control," says RBI official

CDR has gone up to Rs 2.7 lakh crore

Stating that the overall asset restructuring in the banking system has touched Rs 3.25 lakh crore as of June, RBI Executive Director B Mahapatra today said loan recast has gone "out of control" and all stakeholders need to tackle the problem jointly.

"Till March 2011, things were manageable. We had around Rs 1.1 lakh crore in recast loans, but now if you see, things are quite out of control. It has gone up to Rs 2.7 lakh crore. This is only CDR (corporate debt restructuring) and if you put both (CDR and bilateral restructuring cases between banks and companies) together, may be it might exceed Rs 3.25 lakh crore," he said at the annual Bancon here.

Mahapatra said the Reserve Bank of India was willing to "tolerate a bit of restructuring," but he exhorted banks to provide more against potential asset quality troubles and promoters to get more equity and personal guarantees.

"We'll tolerate a bit of restructuring, we will give the regulatory forbearance, offer more time -- that is the loss or the sacrifice that we as regulators are willing to make. But you as bankers should also be willing to make more provisions...And the borrowers should also sacrifice, he should bring in more equity," he said.

"It is a loss-sharing arrangement. In a system, when there is a problem, all the stakeholders should share the loss," the executive director said.

Mahapatra pointed out that the RBI has increased the provisioning requirements for banks from 2% earlier to up to 5% in some cases.

Seeking to allay concerns, Mahapatra said things are not as bad as they are made out to be. He said the total stress in the system, including non-performing assets (NPAs) and restructured assets, is under 10%, which is less than the 16% level in the aftermath of the 1997 Asian financial crisis.

The situation is not "panicky," he said.

Most of the stress comes from infrastructure and allied sectors, Mahapatra said.

Meanwhile, without sharing details, Mahapatra said the RBI was planning to encourage early recognition of stress in the books so that a problem can be dealt with when the first signs become visible.

"If you recognise NPL early or you go for early restructuring, probably we will incentivise you," he told bankers, hinting that the initiative may involve reporting an NPA before the current 90-day period for an asset to be classified as such.

"Before 90 days, you know the trend. We are still working on it, nothing is finalised," he said.

Governor Raghuram Rajan yesterday said the RBI would announce steps to incentivise early recognition, better resolution and fair recovery of distressed loans.

Mahapatra also expressed concern at the falling provision coverage ratios of the banking system, saying they have on average slipped to 45% from over 55% three years ago.

Ideally, the RBI would like to see the number go up to 55-60%, excluding provisions towards standard assets, as is the practice in our country, he added. PTI AA