The Reserve Bank of India has set a deadline of March 31, 2018 for banks to provide against a second list of stressed assets likely to be referred for insolvency proceeding in December, three bankers in the know have confirmed.
In August, the RBI had identified a list of about 30 stressed accounts and asked banks to try and resolve them by December or initiate bankruptcy proceedings. This list had followed a first list of 12 large stressed accounts identified in June.
According to the bankers quoted above, RBI has asked lenders to provide for the second set of accounts in line with the provisioning requirement laid down for the 12 large cases first referred for insolvency. Going by those rules, banks will need to provide 50 percent against the secured exposure and 100 percent against the unsecured exposures in these cases.
For the first set of firms referred for resolution under the Insolvency and Bankruptcy Code (IBC), banks were given three quarters to make adequate provisions. These accounts made up nearly a quarter of the bad loans in the system, which stand at about Rs 8.4 lakh crore. For the second list of accounts, the RBI has now set an accelerated provisioning schedule, giving banks only until the end of the March quarter to make provisions.
To be sure, banks had already started providing for these accounts once the second list was sent out in August.
State Bank of India (SBI), while announcing its second quarter results had stated that it had already started providing for the 27 accounts in the second list, where it has exposures. Similarly, Union Bank of India, which reported a Rs 1500 crore loss in the September quarter, said that it had provided against the first list of stressed assets during the quarter so that it can focus on the second list.
The government, too, wants banks to complete the provisioning requirements this year as that will help give a clearer picture of the funds needed by individual banks under the recapitalisation program. The government has allotted Rs 2.11 lakh crore for recapitalising Indian state-owned banks, which have been in the midst of a bad loan clean-up since 2015.
According to the bankers quoted above, the government had sought full details of the additional provisioning requirements that banks might face this financial year. Most have submitted these details. The government is likely to use this information to decide on allocation of capital, the bankers said.
According to Hemindra Hazari, an independent banking analyst, the tighter deadline for provisioning against the second list may prove to be beneficial to bankers.
“The market always likes to see a full cleanup. From what we have seen, even in the case of Union Bank (of India), when they showed accelerated provisioning, the market actually took it in its step. In one way it is heartening that at least there will be closure on all these bad debt problem,” Hazari said.
The RBI first initiated a clean-up of bank balancesheets in mid-2015 following an asset quality review. As part of the process, banks were asked to appropriately recognise stressed assets, provide for them and begin resolving them. The recognition process is nearing completion and gross NPAs have risen from Rs 3.4 lakh crore in the September 2015 quarter to Rs 8.4 lakh crore at the end of the September 2017 quarter.
The focus now is on providing for these stressed accounts and resolving them. While the government cleared an unprecedented Rs 2.11 lakh crore bank recapitalisation plan, the resolution is being driven by the RBI, which via an amendment to the Banking Regulations Act, got powers to intervene directly. It was following this amendment that the regulator identified stressed accounts which need to be referred for resolution under the IBC.
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