Govt, RBI in talks to relax provisioning for IBC cases
MUMBAI: The government and commercial banks are seeking a relaxation in provisioning need on accounts identified for bankruptcy proceedings to free up capital and boost credit growth. The finance ministry is in talks with the Reserve Bank of India on this issue, said three senior government officials aware of the matter on condition of anonymity.
Credit off take is hovering around some of the lowest levels in the last six decades. After falling to 5.1% in fiscal 2017, growth in non-food credit rose to 7% by mid-September.
“Credit pick up has slowed down and RBI’s provisioning requirement will further squeeze credit to the industry,” said one of the officials cited earlier.
On June 26, RBI had directed banks to banks to set aside 50% of the loan amount as likely losses for all cases it has referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code. RBI also said that provisioning should be 100% in those cases that fail to get resolved under the insolvency proceedings and instead are forced into liquidation.
The provisioning norms are currently applicable for the 12 cases referred to NCLT. In August, the central bank had sent a second list of at least 28 accounts to banks asking them to resolve the cases by December 13, failing which they have to be taken for bankruptcy proceedings.
If these cases do go to NCLT, provisioning will go up further. The Indian Banks Association had asked the central bank to spread the provisioning for these new cases over 12 quarters starting from the July-September quarter, according to a senior banker aware of the matter.
“Banks have been awaiting clarity on provisioning norms before taking the cases to NCLT,” saidthis person. “Banks may need additional provision of ₹50,000 crore on these accounts as some cases in the second list fall under SMA2 or substandard category. This is unlike the first list where banks had already made 40% provisioning.”
SMA-2, or special mention accounts -2, are loans whose interest and principal are overdue between 60-90 days. These loans are still standard assets. Sub-standard loans, however, require a 15% provision.
Secondly, RBI had also asked banks to assign higher risk weights of 150% on unrated exposures of at least Rs 200 crore starting from June. This includes even loans to public sector entities which are largely unrated.
However, RBI wrote to lenders recently clarifying that this regulation was deferred till the end of September, according to the banker cited earlier.
In an email response, a RBI official said there was no information to share.