RBI removes NPA tag from 20 loan accounts

MUMBAI: The Reserve Bank of India (RBI) has reduced the list of companies whose loans have to be provided for by banks to cover against the risk of default. This will ease the pressure on banks and improve their balance sheets.

According to people familiar with the development, about 20 select loan accounts have been kept aside, implying that banks will not have to provide for these accounts under the asset quality review (AQR) exercise initiated by the RBI in December.

While the RBI did not respond to a query on this issue by HT,a senior official of a large public sector bank (PSB) confirmed the move, saying the steps taken by the 20 companies to reduce their debt has prodded the central bank to make this relaxation. It is learnt that the RBI told heads of banks in a late April 20 communication that they will not have to provide for the outstanding loans of the 20 firms in the March quarter.

Infrastructure major Jaiprakash Associates and Coastal Energen were among the 20 NPA accounts that banks will be exempt from providing for. This will help banks keep the accounts as ‘standard’ for the January-March quarter and report better results.

NPAs or non-performing assets are loans that do not yield returns.

Provisioning typically involves banks setting aside an amount to cover for loans that run the risk of a default. A slowing economy and stalled projects over the past two years had led many companies to default on their loan payments to banks, prompting the banks to make large provisions. This provisioning had affected the profitability of banks, leading many large PSBs to report losses.

Another banker suggested that “the RBI would have reviewed the status of these accounts after their performance in the previous months and selectively identified them where they are convinced with the steps taken by those companies.”

Fifteen PSBs reported losses on their domestic operations in the third quarter of 2015-16 as a result of increased provisions for loss assets and write-offs of bad loans.