RBI asks banks not to treat default by some firms as NPA in Q4

In view of mounting bad loans eating into banks’ profits, the Reserve Bank of India (RBI) has allowed them to exclude from provisioning stressed loans of certain companies in the fourth quarter numbers.

This will help ease the burden on banks to some extent and support their bottom line. About two dozen companies which have been trying to repay loans by selling their assets or some of their subsidiaries have been excluded from the defaulters’ list.

“After reviewing accounts which were under asset quality review, RBI felt some of the accounts can be standardised. They have asked banks to make them standard,” said a senior bank official from a state-run bank.

RBI has communicated about the exclusion to banks, sources said, adding that some of the companies falling under the category include Jaiprakash Associates.

Last month, Jaiprakash Associates completed the sale of a majority of its cement business to Ultratech Cement for Rs 15,900 crore. The group had an estimated debt of around Rs 75,000 crore as of 31 March 2015.

About 150 entities including Jaiprakash Associates were classified as non-performing assets during the last quarter after the Reserve Bank of India's stringent asset quality review (AQR) came into effect.

Following that, each bank was asked to make additional provisions as part of the third or fourth quarter results.

AQR undertaken by the RBI last December has resulted in a spike in bad assets with lenders recognising over Rs 1 lakh crore of bad assets in the December quarter alone.

The gross Non Performing Assets (NPAs) of public sector banks (PSBs) increased from 5.43 per cent as on March 2015 to 7.30 per cent as on December 2015. Gross NPAs of PSBs increased from Rs 2,67,065 lakh crore in March to Rs 3,61,731 lakh crore in December.

The mounting bad loans eroded the profitability of all banks with 11 public sector lenders reporting losses of Rs 12,867 crore in the third quarter.

For example, Bank of Baroda reported a whopping loss of Rs 3,342 crore, the highest ever quarterly loss posted by any public sector bank in the industry. IDBI Bank recorded a loss of Rs 2,184 crore while Bank of India posted a loss Rs 1,505 crore for the quarter ended December.

Besides, UCO Bank reported a net loss of Rs 1,497 crore, followed by Indian Overseas Bank (Rs 1,425 crore), Central Bank of India (Rs 837 crore) and Dena Bank (Rs 663 crore).

Banks which posted sub-Rs 500 crore loss were Kolkata-based Allahabad Bank (Rs 486 crore), Oriental Bank of Commerce (Rs 425 crore), Corporation Bank (Rs 383 crore) and Syndicate Bank (Rs 120 crore).