NPA maze: Govt for scrap­ping of one-day de­fault norm

Financial Chronicle - - PLAN, POLICY - AN­JANA DAS

THE fi­nance min­istry is said to have sug­gested the Re­serve Bank of In­dia (RBI) to scrap the one-day de­lay norms in its stressed as­set res­o­lu­tion frame­work. Un­der the present norm, fail­ure in loan re­pay­ment by even for a day be­yond the 90-day pe­riod makes the loan an NPA.

The lenders want the cen­tral gov­ern­ment to make the bank­ing reg­u­la­tor re­move it. Banks also want sev­eral other re­lax­ations like con­tin­u­a­tion of some of the ear­lier scheme – S4A, JLF and SDR.

Ac­cord­ing to of­fi­cials, the gov­ern­ment as well as banks feel the one-day de­lay norm could harm busi­nesses and lead to mak­ing loans below Rs 2,000 crore straight­away NPAs and in turn force banks to raise pro­vi­sion­ing.

The fi­nance min­istry has in­formed RBI that banks are ap­pre­hen­sive of se­ri­ous liq­uid­ity and NPA is­sues if the norm is im­ple­mented.

But RBI is likely to stick to its NPA res­o­lu­tion and re­lated mech­a­nism and the fi­nance min­istry may not like to med­dle with the reg­u­la­tor be­yond mak­ing sug­ges­tions.

Se­nior bankers feel if the min­istry fails to go be­yond the brief then it could be sta­tus quo for lenders. Banks chiefs re­cently met a par­lia­men­tary panel to seek eas­ing of the new NPA frame­work.

Ac­cord­ing to RBI norms, if the prin­ci­pal or in­ter­est is over­due for one day be­yond 30 days, the ac­count is iden­ti­fied as spe­cial men­tion ac­count-0 (SMA-0). If it is over­due for 30-60 days, it comes un­der the SMA-1 cat­e­gory. If it gets over­due for more than 60 days, till 90 days, it falls un­der the SMA2 cat­e­gory.

If a loan is not re­paid for more than 90 days, it is clas­si­fied as non-per­form­ing as­set (NPA). RBI has also stressed that if the res­o­lu­tion plan was not im­ple­mented within 180 days, bankruptcy process should be ini­ti­ated. Banks have to make 50 per cent pro­vi­sion for ac­counts that are re­ferred to the NCLT for in­sol­vency pro­ceed­ings. And if an ac­count of (to start with) Rs 2,000 crore and above, fails to ser­vice its loans within 91 days, it would be con­sid­ered a ‘de­fault’ and a res­o­lu­tion plan will have to be read­ied.

Lenders, said a se­nior bank of­fi­cial, are go­ing through a tough time. While banks need to be earnest and tough on NPA de­tec­tion and res­o­lu­tion, the strin­gent one-day de­lay norm would be dif­fi­cult to main­tain as it would lead to for­ma­tion of NPAs each day, the banker felt.

Banks are al­ready un­der pres­sure to meet so­cial ob­jec­tives like fi­nan­cial in­clu­sion, farm loans at lower rates, main­tain­ing scores of zero bal­ance de­posits which also only add to costs with­out any re­mu­ner­a­tion, the of­fi­cial said. If due to the new norm banks come un­der strain to raise pro­vi­sion­ing for po­ten­tial NPAs, then the cap­i­tal-starved lenders would be left with al­most noth­ing to lend and in­vest, which would se­verely af­fect growth, and more banks would come un­der the Pre­ven­tive Cor­rec­tive Ac­tion (PCA) of RBI lead­ing to fur­ther re­stric­tions.

The cen­tral bank sources said the de­fault norms are well de­fined. So how one­day norm af­ter 90 days would re­sult in more NPAs, he asked and added it would rather lower NPAs by iden­ti­fy­ing them early.

De­fend­ing with­drawal of schemes like SDRs, CDRs, JLFs and S4A, which gave banks a win­dow in post­pon­ing their ac­knowl­edg­ment of de­faults that later turned loans into NPAs, they said it was a right step in right di­rec­tion.

Go­ing by the new frame­work for res­o­lu­tion of stressed ac­counts, the fate of a de­fault­ing en­tity will be sealed within 465 days. If lenders are not able to work out a so­lu­tion to re­vive a com­pany within 180 days, the ac­count must be re­ferred to the Na­tional Com­pany Law Tri­bunal (NCLT) and the case would be de­cided un­der the In­sol­vency and Bankruptcy Code (IBC).

Banks have sought change in the norm about req­ui­site ma­jor­ity re­quired to ap­prove any res­o­lu­tion plan to 75 per cent from 100 per cent and once there is a change in the pro­moter of the firm, banks should be able to re­verse the ex­cess pro­vi­sions.

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