RBI mulls extending debt recast deadline norms

Public sector banks lead in stressed assets and restructured advances, which are 9.8% of gross advances at the end of March 2014

The Reserve Bank of India (RBI) was considering banks’ requests to extend the April 1, 2015, deadline to do away with regulatory forbearance on restructured advances, R Gandhi, deputy governor of the central bank, said on Wednesday.

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

“Recently, we have received such a request from the banking system. We are examining this and will take a call,” Gandhi said on the sidelines of an event here.

As of March this year, stressed and restructured advances, as a proportion of gross advances, stood at 9.8 per cent, against 10.2 per cent in September 2013. Public sector banks continued to register the highest stressed advances, at 11.7 per cent of total advances, followed by old private banks, at 5.9 per cent. According to RBI data, gross non-performing advances, as percentage of total gross advances of the entire banking system, stood at four per cent in March this year, compared with 4.2 per cent in September 2013.

Following a July 2012 report on restructuring of advances by RBI Executive Director B Mahapatra, the central bank decided no regulatory leeway on debt restructuring would be provided to banks and all such recasts would be treated as non-performing assets from April 1, 2015.

Owing to a surge in non-performing assets through the past three years, pressure on bank’s profitability will increase if they have to treat restructured advances as non-performing assets.

R Gandhi also expressed concern on banks’ exposure to the infrastructure and housing sectors. These sectors, he said, accounted for a quarter of bank’s books. “We are very concerned about banks’ exposure beyond these levels,” he said.

According to RBI data, loans to the housing sector increased 18 per cent in 2013-14, while loans to commercial real estate rose 22.4 per cent.

Recently, the central bank had allowed banks to raise long-terms funds to finance affordable housing and infrastructure projects, for which banks will not have to maintain cash reserve ratio and statutory liquidity ratio; they will also be exempted from priority sector lending norms. The move was aimed at increasing the flow of resources to the infrastructure and housing sectors.

Gandhi said since these moves were announced in July, two banks had raised funds through long-term bonds. “On the one hand, we have to take care of banking sector health and, at the same time, we will have to support infrastructure. Natural growth will happen, but increasing the proportion beyond this might be a tall order,” he said.