RBI clarifies norms on 'stressed assets'

Ending the confusion over provisioning for ‘stressed assets’ taken up for special restructuring, the Reserve Bank of India (RBI) today said that only those cases where banks restructured the accounts by March 31, 2009, could be classified as ‘standard assets’.

All cases where a proposal for loan restructuring was received but the package was still to be implemented, would have to be treated as non-performing assets (NPAs), which require higher provisioning.

But once the package is implemented, the RBI has allowed banks to report these accounts as standard assets with retrospective effect. “In this regard, it may be clarified that reporting with retrospective effect does not mean reopening the balance sheet which is already finalised; what it means is that in all subsequent reporting, the account will be reported as standard and any provisions made because of its interim slippage to NPA can be reversed,” the RBI said in a circular issued this evening.

According to the special restructuring scheme, the RBI had allowed banks to restructure accounts, which were standard on September 1, 2008, but slipped into the NPA category before March 31, 2009, and classify them as standard assets. In normal course these accounts have to be classified as NPAs. The RBI had said that the restructuring package had to be put in place within 120 days from taking up the proposal.

The central bank has also asked banks to make additional disclosures regarding restructured loans, which includes the number of proposals received, and the amount involved; the number of loans, and the amount, which was restructured by March 31 and accounts where the process is underway.

The banking regulator has gone by the Institute of Chartered Accountants of India’s (ICAI’s) argument that merely the receipt of an application for restructuring a loan was not sufficient to classify it as standard. The ICAI had asked its members to exercise caution while dealing with auditing of accounts that were taken up for restructuring but the process was not completed by March 31.