RBI promises more flexible field for asset recast firms

Steps include allowing banks to take excess provision for NPAs to profits

As a step to revive the almost moribund activity in the asset reconstruction segment, the Reserve Bank of India on Tuesday mooted a slew of steps, including allowing banks to take excess provision (for non-performing assets) to profits.

It also wishes to allow banks to spread the loss over two years for assets sold below net book value (NBV). And, to allow banks to reverse the excess provision on sale of NPAs (if the sale is for a value higher than the net book value) to its profit and loss account in the year the amounts are receivable.

P Rudran, chief executive of Asset Reconstruction Company (ARCIL), said the many steps could boost activity. Asset reconstruction companies (ARCs) will discuss the proposals between themselves and give their reactions. (RBI PRESCRIPTION: PREVENTION IS BETTER THAN CURE)

This facility of spreading over the shortfall would, however, be only available for NPAs sold up to March 31, 2015, and be subject to necessary disclosures.

RBI also wishes to allow banks to make accelerated or additional provisioning at the time of sale of NPAs without obtaining the central bank’s prior permission. RBI also wishes to permit ARCs to buy and sell bad loans. At present, sale of assets between ARCs is not permitted.

The issue will be taken up with the government.

This step, when put into law, will encourage liquidity and price discovery of stressed assets, said a senior executive with ARCs.

RBI said the ability of ARCs to raise limited debt funds to rehabilitate units will be considered.

It will consider raising the minimum level of capitalisation of ARCs, in view of the recent liberalisation of foreign direct investment ceilings and enhancement of working funds.

The ARCs will be encouraged to reach a certain minimum level of targets for assets under management.