RBI to banks: Don't use debt recast for window-dressing

Ruling out any relaxation in the norms for non-performing assets, the Reserve Bank of India today asked banks not to use permission for the second restructuring of loans as a chance for window-dressing the accounts.

Many viable units are facing temporary cash flow problems due to the economic slowdown and the central bank in December 2008 had allowed banks to restructure such loans accounts without lowering their status.

“There have been demands that NPA norms should be relaxed. But rather than relaxing the NPA norms, the banks should restructure their loans by elongating the repayment cycle,” RBI Executive Director Anand Sinha said, while addressing a banking seminar here today.

The flexibility to deal with units, especially small and medium-sized enterprises, was granted to avoid slippages.

“We have not given regulatory forbearance (there is no dilution in norms),” an RBI official said. The central bank has relaxed norms on loan restructuring till June-end, and banks can now restructure loans within 120 days compared with 90 days earlier.
 

ON A STICKY WICKET Banks with highest gross non performing assets
(Rs crore)	Quarter ended
	8-Mar	8-Dec	% Chg
State Bank of India	12,837.34	13,314.43	3.72
ICICI Bank	7,579.54	8,988.08	18.58
Punjab National Bank	3,319.30	3,264.35	-1.66
Canara Bank	1,415.55	2,515.46	77.70
Central Bank	2,349.84	2,288.33	-2.62
Bank of India	1,930.92	2,212.73	14.59
Bank of Baroda	1,981.38	1,921.42	-3.03
HDFC Bank	906.97	1,911.41	110.75
Syndicate Bank	1,768.65	1,762.24	-0.36
Indian Overseas Bank	996.95	1,718.11	72.34
Source : BS Research

Earlier, if a loan was not restructured within 90 days, it was classified as an NPA. RBI has extended the period since the number of accounts to be restructured are large. The extended payment cycle will prevent loans from going bad.

Referring to the purpose of allowing recast, Sinha said that restructuring is not ever greening (window-dressing).

“We will not allow it. It is meant to preserve the economic value of assets,” he added.

The well-regulated banking industry has helped the country’s economy to insulate itself from the present global financial turmoil. The banks’ capital adequacy ratio was about 13 per cent at the end of December 2008.

The gross NPAs, in per cent terms, have also declined sharply from over 15 per cent in 1996-07 to 2.3 per cent at end of March 2008.

Banks need more capital to survive in difficult times and should focus on capital-building in ‘good times’, he said.