Banks ask for more time for NPA recast

Banks have asked for more time for the completion of the process of restructuring bad loans.
In the pre-Credit Policy meeting with the Reserve Bank of India officials, banks have requested for extension of the deadline for restructuring of bad loans to December 31. The original deadline was set for June 30.

Dr K. Ramakrishnan, Chief Executive, Indian Banks’ Association, said banks are finding it difficult to complete the restructuring process, as they have to process all proposals received till March-end. Especially loans given in group lending are difficult. Therefore banks have requested the RBI to extend the time till December 31 to complete the restructuring process, he said.
Last year, the RBI prudential guidelines on restructuring of advances were issued for the banks in order to help the industry overcome spill-over effects of the global downturn. The spill-over effects can be seen affecting the economy mainly from September 2008 creating pressure for the otherwise viable units/ activities.

As per the guidelines, special regulatory treatment was extended to commercial real estate exposures restructured for the first time as well as to exposures (other than commercial real estate, capital markets and personal/ consumer loans) which was feasible but were facing temporary cash flow problems and needed a second restructuring.

Bank chiefs who attended the meeting also explained to the RBI that credit growth is limp. However, there is more disbursal in the housing sectors. Funds are being taken by some mid-corporates for capex therefore credit offtake is likely to pick up over the next two quarters, Dr Ramakrishnan stated.

Bankers are positive that the 20 per cent credit growth, as predicted by the RBI in the annual monetary policy, will be achieved by the end of the fiscal.

Bankers have also asked the RBI to review at some of the provisioning norms. For instance, banks have requested for differential provisioning across various segments depending on the security, instead of a standard provisioning.

Banks, in the case of infrastructure projects also, have asked for relaxation in some of the provisioning norms in case the project is not ready on the date of completion. Dr Ramakrishnan pointed out in case the special purpose vehicle of a particular company defaults in a payment, then the whole corporate should not be treated as an NPA. Regarding the interest rate, the RBI has taken note of the periodic rate cuts announced by some banks.

Addressing the presspersons after the meeting, Mr O.P. Bhatt, Chairman, State Bank of India, said, “At the moment, the interest rate scenario is soft. May be for some industry players, softening could take place... small room is there. Six months down the line, when credit growth picks up and all the (government) borrowing takes place, it could stabilise there or harden.”
Dr Ramakrishnan said the RBI has also certain bank chiefs that the additional government borrowing will not put any restriction on liquidity.