The Reserve Bank of India’s (RBI) decision to raise provisions for restructured standard accounts from 2% to 2.75% will hit bank bottomlines by 3%, said bankers at a press conference on Tuesday. This is expected to hurt public sector banks more, since they have larger restructured assets compared with their private sector peers.
Amongst the big lenders that will be most affected include State Bank of India, Punjab National Bank, Bank of Baroda and Bank of India that have standard restructured assets in excess of R15,000 crore. For instance, in the case of PNB which had a restructured book of R27,852 crore as on September 30, the additional provisions will be to the tune of R209 crore.
Bankers also said the new RBI guidelines on restructured assets, which have taken into account the recommendations of a committee headed by RBI ED B Mahapatra, are expected to be released later this financial year. Punjab National Bank (PNB) CMD KR Kamath said the new guidelines will stipulate that those accounts which have successfully completed two years of restructuring and are adhering to the repayment schedule can be taken out of the restructured books and upgraded.
The Mahapatra committee had in July suggested banks must provide for 5% against restructured loans that are classified as standard instead of the current 2%. The panel had also recommended that promoters must make a bigger sacrifice. ?Promoters must make good 15% of the fall in fair value or 2% of the restructured amount, whichever is higher,? the panel said. In addition, they must furnish a personal guarantee.
The current guidelines limit the promoters? sacrifice to at least 15% of the fall in fair value of the loan. RBI group also feels conversion of loans into preference shares of the company should be done only as the last resort and that the conversion, of a part of loan into preference shares, must be capped at around 10%.
RBI in the policy statement noted that a major reason for deterioration in the asset quality of banks is the lack of effective information sharing among them. Therefore, RBI recommended banks should strictly adhere to the instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among themselves.
