Small borrowers deprived of loan recast

Banks asked to identify stress in assets before these become non-performing

The Reserve Bank of India (RBI) on Tuesday said banks had not readily extended loan restructuring facilities to small accounts. It asked banks to get a mechanism to detect early signs of distress in asset quality.

With most bank branches computerised, RBI has asked for prompt restructuring in all viable accounts, wherever required. Banks have also been told to have system-generated, segment-wise data on their non-performing assets (NPA), write-offs, compromise settlements, recovery and restructured accounts.

Following a government order last year, all public sector banks have implemented a system-driven classification of NPAs, resulting in an increase in delinquencies. “It is important the signs of distress in all stressed accounts are detected early and those viable are also extended restructuring facilities expeditiously,” RBI said.

 

WHAT RBI SAID

• Detect distress in asset quality early
• Restructure viable assets promptly
• Have system-generated segment-wise data on non-performing accounts
• Debt recast of small accounts ignored
• Aviation sector’s asset quality concerns have receded a bit

The central bank is to shortly issue a detailed guideline on NPA management. The report of the working group on debt recast, chaired by RBI executive director B Mahapatra, is to be released by end-July.

In a press briefing, RBI governor D Subbarao said the issue was discussed with bankers during the post-policy meeting and some banks said they were undertaking debt recast of small accounts. The amount of company loans referred to the corporate debt restructuring forum grew to about Rs 80,000 crore in 2011-12 from about Rs 25,000 crore in 2010-11.

Bankers said a rise in input costs due to galloping commodity prices, a slump in export demand, especially in Europe, and a general slowdown were straining repayment capacity. An increase in interest cost due to a rise in lending rates, especially for medium-size units, have especially hit small and medium-size enterprises.

Prominent cases include GTL, Hindustan Construction and Hotel Leela Venture. Other cases mostly include medium-sized units from the steel, textiles, pharmaceutical, infrastructure and edible oil segments.

Asset quality concerns from the troubled aviation sector have somewhat receded, with the Cabinet approving Air India’s (AI) debt recast plan, Subbarao said. Banks have restructured Rs 18,000 crore of the Rs 24,000-crore debt of the carrier. AI will issue non-convertible debentures to raise Rs 7,400 crore and use it to repay a part of its debt. The rest will be converted into long-term debt, to be repaid in 10-15 years, at an interest rate of 11 per cent. The bond will have a government guarantee and a maturity period of 20 years.