PSBs approach RBI for relaxation in provisioning

Banking regulator has trimmed the list of companies whose loans have to be provided for against risk of failure to pay up in the March quarter

IDBI and Union Bank are among state-owned lenders to have approached the Reserve Bank of India to waive the condition for accelerated provisioning for stressed accounts among corporate borrowers, if these are turning around and not seen as vulnerable.

RBI has trimmed the list of companies whose loans have to be provided for against a risk of failure to repay. The Jaiprakash group’s Coastal Energen and Bhushan Power are among the 20 companies whose names have been taken out from the earlier list of 150 companies RBI had identified.

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Analysts and public sector bank (PSB) executives said the reprieve could ease the pressure on banks that had planned to spread such provisioning over two quarters.

Three PSB executives said most banks have put up cases before the regulator to grant a relaxation in making accelerated provisioning for some corporate accounts, arguing there were clear prospects for improvement in performance and credit profile. Banks would continue to seek a relaxation till the central bank categorically refuses, said an executive director with a large PSB.

An official with a Mumbai-based PSB said his bank had a relook at the corporate loan book after making provisions in the third quarter, based on the Asset Quality Review ordered by RBI for all banks. Some corporate accounts earlier seen as vulnerable are turning around and would get upgraded in due course. In such cases, the bank has made a case to RBI to forgo the requirement to make provisions.  Such requests are backed by an auditor’s certificate, giving comfort about the status of the account, a bank official said.

However, such relief might mean little if the pace of stress resolution remains a long-drawn process. Abhishek Bhattacharya, director at India Ratings, said the leeway might give short-term relief but not much more.

Religare Securities, in a note to investors, said the reason behind pruning of the earlier borrower list was unclear. RBI’s move is positive if the list is being pruned because of deleveraging or an assurance of debt reduction via a clear roadmap by these companies. However, if the decision was taken on the back of improving metal prices or recovering health of metal companies on account of the minimum import price imposed recently by the government, then it only pushes the problem to a later stage, Religare said.

A chief financial officer of a private sector lender said: “It might work out in favour of some banks but it is possible that other lenders get hit severely.” RBI had provided relaxation only on certain accounts where they'd seen either money flowing in or the risks are properly hedged. As a result, some large banks that were hoping for leeway might end up getting hit, he said.