RBI tightens loan recast norms

RBI tightens loan recast norms

Worried over rising non-performing assets (NPAs), the Reserve Bank today tightened rules for restructuring of most types of loans in line with global practices.

As per the latest RBI notification, provisioning on newly-restructured accounts has been raised to 5 per cent from June 1, 2013 from 2 per cent now. However, for old restructured accounts, it will be done in the phased manner.

The Reserve Bank also said that existing “regulatory forbearance” will no longer be available from April 1, 2015.

As per existing guidelines, an account after restructuring is not classified as NPAs. However, as per the new norms, restructured account would be treated as NPA.

“This may be made applicable with immediate effect in cases of new restructuring but in a phased manner during a two year period for the existing standard restructured accounts,” it added.

As a result, the banks will have to do higher provision which will have negative impact bottom lines.

Banks are also advised that they should correctly capture the reduction in fair value of restructured accounts as it will have a bearing not only on the provisioning required to be made by them but also on the amount of sacrifice required from the promoters, it said.

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