RBI to meet bankers on Thursday for pre-policy discussions

Banks will ask the banking regulator to defer the higher provisioning norms on standard restructured advances

The Reserve Bank of India (RBI) will meet the country's top bankers on Thursday's for pre-policy discussions, in which the latter will seek a deferral of the higher provisioning norms that came into effect today.

In addition, the recent RBI norm that increased the threshold level of bulk deposits to Rs 1 crore from Rs 15 lakh is hurting the retail savers and it needs to be reversed, bankers said.

RBI governor D Subbarao, along with four deputy governors, will meet the bankers. The central bank's annual monetary policy will be announced on May 3.

"We have seen deposit growth falling much below credit growth for the last two years. Bank deposits are losing sheen to small savings schemes and liquid mutual fund schemes. The recent guidelines, which mandated Rs 1 crore and above deposit as bulk deposit, need to be reversed to attract more depositors," said Pratip Chaudhuri, chairman, State Bank of India.

Bulk deposits offer a premium of around 10-25 basis points over the card rate, which is offered to retail deposits. "We will request the regulator for maintaining the earlier norm of Rs 15 lakh for the classification of bulk deposit," Chaudhuri said. The minimum tenure of deposit to be classified as fixed deposit, which is mandated at seven days, needs to be reduced to three days, he said.

Banks will also ask the regulator to defer the higher provisioning norms on standard restructured advances.

Following the recommendations of the B Mahapatra committee, set up to study debt recasts, the banking regulator has decided to increase the provisioning requirement for fresh restructured loans from 2.75 per cent to five per cent from today.

In addition, for the existing stock of restructured assets, it was decided to increase the provision from 2.75 per cent to five per cent in a phased manner, that is, to 3.75 per cent spread over the four quarters of 2013-14 and then to five per cent over the four quarters of the next financial year.

The Mahapatra committee has suggested withdrawal of the regulatory leeway given to loan recast, which meant all loans that are restructured will cease to be classified as standard assets and banks have to mark those as sub-standard assets. Sub-standard assets, or loans backed by collateral, attract provisioning of 15 per cent.

Banks want deferral of these stricter norms amid rising restructured loans, and a higher provisioning on such loans will put pressure on their bottomline.

The ratio of restructured standard advances to gross advances has almost doubled in one year for public sector banks. According to data compiled by the finance ministry, restructured standard advances ratio increased to 7.41 per cent in December 2012 from 3.46 per cent a year ago. The gross non-performing asset ratio of public sector banks has increased to 4.18 per cent from 3.22 per cent.

According to bankers, foreign banks are likely to take up the issue of priority sector lending norms with RBI and will ask for more time to comply with the norms. Following the recommendations of the Nair Committee, RBI has decided that foreign banks should have similar priority sector lending obligations with that of Indian lenders.

According to the revised guidelines on priority sector lending, RBI has mandated higher target for foreign banks with more than 20 branches in the country. These banks need to lend 40 per cent of their net credit (similar to Indian banks) to the priority sector instead of 32 per cent. They will also have sub-targets and five years time, starting from April 2013, was given to foreign banks to meet the new guidelines.

In addition, RBI had removed priority sector tag for certain loans such as export refinance, in which foreign banks were very active. According to bankers, a request will be made to RBI for including such loans under the priority sector.