The Reserve Bank of India (RBI) has brought about new norms directing all banks to start insolvency proceedings on accounts. The ICRA says that the new resolution is liked to increase the reported non performing assets (NPAs) in the coming quarters. The RBI says that a new resolution plan must be implemented within 180 days of the first default if the bank’s exposure exceeds Rs 2,000 crores. If not then the lenders should file for an insolvency petition within 15 days of the expiry of 180 days. The RBI had sent two lists of firms against which insolvency proceedings could be taken at the National Company Law Tribunal. Banks have to make a 50% provision in respect of accounts that are subject to insolvency proceedings. In comparison, the provisioning norm for sub-standard assets is 15-20%. SMA category indicates the time period over which repayment on a loan has not been made. Banks’ gross NPAs and standard restructured advances were estimated at 12.6% as on September 30, 2017. The RBI had estimated SMA 2 advances (where repayment is not made for more than 60 days) to be 3.5% of gross advances. ICRA said overall stress levels of banks including SMA0 (overdue between 1 and 30 days) and SMA1 (overdue between 31 and 60 days) borrowers was much higher than the reported GNPA level of 10.3% as on September 30. Karthik Srinivasan, Group Head of Financial Sector Ratings, ICRA says that early identification of stress and resolution will prevent future ever-greening of loans and ensure a good financial health for the banking system in the long-term.
Courtesy/By: Ikcha Sushil Kumar
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15 Feb 2018
