Page 44 - Banking Finance AUGUST 2015
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ARTICLE
D Lenders can spread loss on sale of loan assets over better regulatory treatment of stressed assets if a resolution
two years, provided the loss is fully disclosed. plan is underway. However, it will attract accelerated
provisioning if no agreement can be reached. Seeking
D Lenders can takeout financing/refinancing over improvements in the current debt restructuring process, the
longer periods, which will not be construed as framework allows independent evaluation of large value
restructuring. restructuring.
D Leveraged but-outs will be allowed for specialized This is for purpose of framing viable plans and a fair sharing
entities for acquisition of 'stressed companies. of losses (and future possible upsides) between promoters
and creditors. It also mooted steps to enable better
D Steps to enable better functioning of ARCs mooted. functioning of asset reconstruction companies. This is apart
from encouraging sector-specific companies and private
D Sector-specific companies and private equity (PE) equity firms to play active role in stressed assets market. It
firms will be encouraged to play an active role in has offered liberal regulatory treatment provided for asset
the stressed assets market. sales. Lenders can spread loss on sale over two years,
provided the loss is fully disclosed. Leveraged buyouts will
D Steps taken by the government and RBI so far have be allowed for specialized entities for acquisition of 'stressed
resulted in improvement in recoveries of NPA by companies'.
PSBs. These have increased from Rs. 9726 crore as
in March 2010 to Rs. 20,288 crore as in March (d) New actions for asset Reconstruction
2013 and Rs. 27,623 crore as in March 2014 Companies:-
(provisional).
Steps to enable better functioning of asset reconstruction
D Increased provision for restructured standard companies mooted. As per RBI report the sector-specific
accounts to 2.75 percent from 2.00 percent. companies/private equity firms will be encouraged to play
an active role in stressed assets market, the continuing
D Increased provision for new restructured standard slowdown in the economy has led to a historic pile of bad
accounts to 5 percent up from 3.75 percent w.e.f. loans in the system.
31 March 2015 spread over the four quarters of
2014-15. RBI in its Financial Stability Report on December 30, 2013
had warned the strain on asset quality continues to be a
(c) New Norms for NPAs:- major concern. "In a base case scenario, with the present
conditions continuing, the gross NPAs (non-performing
The Reserve Bank of India (RBI) has offered some leeway assets) in the system will rise to 4.6 per cent by September
to banks for early detection and resolution of bad loans. 2014 from 4.2 per cent in September 2013 or to about Rs
Under the new regime kicking off from April 1, lenders can 2.29 trillion from Rs 1.67 trillion a year earlier," it had noted.
finance 50 per cent of the outstanding loan value, RBI said In this report RBI suggested some acts for the managing
in Framework for Revitalising Distressed Assets in the assets quality of the banks.
Economy, released on Thursday. Earlier, RBI had proposed
to allow takeover of existing loans by new financiers at 60 These are as follows:-
per cent or more of the loan value.
4 Early formation of Joint Lender's Forum for action plan.
The central bank also diluted rules for accelerated
provisioning it had proposed for non-performing accounts. 4 Carrot for lenders to agree collectively and quickly to a
Now lenders will make 25 per cent provision for unsecured plan.
loans that remain unpaid for six months. Initially, RBI had
proposed 30 per cent provisions. Plus, for loans that have 4 Penalty of higher provisioning for delayed actions.
remained unpaid for two years, banks have to set aside 40
per cent, instead of 50percent. 4 Independent evaluation for large recast deals.
The new framework calls for early formation of a lenders' 4 Takeout and refinancing will not be treated as
committee with the timeline to agree to a plan for restructuring.
resolution. It also offers incentives for lenders to agree
collectively and quickly to a restructuring plan. It will give
44 | 2015 | AUGUST | BANKING FINANCE
