RBI advises banks to allocate higher provisioning for 12 stressed accounts

The Reserve Bank of India (RBI) on Tuesday issued an advisory letter to banks asking them to incorporate additional provisioning on the 12 loan accounts to be referred to the NCLT (National Company Law Tribunal) under the Insolvency and Bankruptcy Code (IBC), reports Moneycontrol.

In a letter to the banks, the RBI advised them to set aside 50 percent provision against the secured portion of these loans and 100 percent provision against the unsecured part.

Earlier, the central bank had directed banks to make 50 percent provisioning on the 12 loans of net worth of around Rs 1,90,000 crore, which has now been revised.

The amount to be set aside by banks is on account of stressed assets to act as buffer in case the loan is not recovered.

Earlier, an Internal Advisory Committee (IAC) was constituted by the RBI, which in its first meeting selected 12 large corporate loan accounts to be referred to the NCLT for immediate resolution.

It also examined the top 50 accounts with an exposure of over Rs. 500 and 60 percent of the loan amount has been classified as non-performing asset (NPA).

As per the RBI's provisioning norms, if an account turns into an NPA, banks are required to set aside 15 percent of the loan amount as provisioning in the first year. The provisioning rises to 25 percent in the second year and 40 percent in the third year.

"Banks have already provisioned about Rs 80,000 crore towards these 12 accounts, while another Rs 40,000 crore of provisioning may need to be done. If this is spaced out over the next six to eight quarters, it would be more manageable for banks from a profitability perspective," said Krishnan Sitaraman, senior director, Crisil Ratings, in a report.

However, the RBI is yet to revert on whether banks are permitted to space out the provisioning or not.

The IAC has also advised the banks to finalise a resolution plan for the ear-marked 12 loan accounts and other corporate ones being filed to the NCLT and within six to nine months, if a viable resolution plan is not agreed upon, banks should initiate insolvency proceedings under the IBC.