RBI widens scope of unsecured loans

The RBI today tightened the prudential norms for unsecured loans and asked banks to treat the value of all rights, licences and authorisations as unsecured advances and not as tangible securities.

In a circular issued this evening, starting April 2009, the RBI has asked banks to disclose the amount of such advances for which intangible securities such as charge over the rights, licences, and authorisations have been taken along with the estimated value of the collateral. Separate disclosures also need to be made in the notes to accounts, the RBI said.

The move would result in higher risk weight and increase the provisioning requirement for banks. “There will be a marginal increase and there will be some impact on the capital adequacy levels,” said the chief financial officer of a bank. Another executive said that the impact would be higher in case of infrastructure and mega projects, which are also covered by the circular.

Typically, banks go by the value of authorisations and licences given by the borrower before a final valuation is carried out. From now on, bankers said, lenders would rather go by their own valuation to keep provisions low.

 

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