Banks want power to tweak NPA resolution schemes
RESTRUCTURE Talks on with RBI to change interest rates, repayment periods
MUMBAI: Bankers are pushing the Reserve Bank of India to allow them powers to change interest rates and repayment periods in schemes such as strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A) to use them more effectively. The talks with the RBI are going on, said two bankers with direct knowledge, even as the government is considering some new proposals to tackle the ₹7 lakh crore bad loan crisis in Indian banking.
Under SDR norms which the Reserve Bank of India (RBI) released in June 2015, banks are allowed to refinance a loan only when they find a buyer for the 51% equity which the lending consortium holds. This refinancing is exempt from being treated as a restructuring, if the consortium provides against any dimunition in fair value of the loan. A fall in fair value occurs if the banks lower the interest rate or extend the period of repayment.
Similarly, in S4A, the regulator allows banks to split the loan in a stressed case to sustainable and unsustainable halves. However, it forbids change in interest or tenure of the loan as a part of the resolution plan.
“If the borrower isn’t given some handholding in these terms, there is no hope for the company to turn around. We can understand it in cases where there has been misuse of funds extended, but a large number of the borrowers are actually straightforward,” said one of the bankers cited earlier seeking anonymity as the talks are confidential.
According to Credit Suisse data, banks have declared some ₹70,000 crore worth of loans being under the SDR mechanism. If buyers are not found for these assets over the next 12-18 moths, they will attract further provisions hitting bank profits.
“We have been asking the regulator to reconsider these points and allow us to change loan covenants,” said the deputy managing director of a large state-owned bank, the second of the two bankers cited earlier.
Separately, the finance ministry has met with senior representatives of the RBI and top bankers this month to discuss bad loan, the bankers said.
At an event on Thursday, finance Minister Arun Jaitley had said that the government and the RBI were working in tandem to create a radical proposal to counter bad debts. Jaitley also talked about increasing the powers of the oversight committee to assess multiple bad loan resolution cases, so that bankers may go ahead with resolution plans without the fear of being harassed by state investigative agencies.
An oversight committee was created to look at S4A cases, so that a neutral party could assess whether all norms had been followed properly. This committee consists of former heads of state investigative agencies.
“The recent arrest of bankers by the CBI (Central Bureau of Investigation) has really rattled officials across public sector banks. The state has to ensure that bankers are not being hunted for genuine business decisions, else they will simply refuse any decisions in the first place,” the second banker said.
In another event on Saturday, Jaitely said bankers will “soon operate without any fear of future harassment should a commercial decision go wrong,” according to a Business Standard report.
On Sunday, the Press Trust of India reported that the government policy, which will be announced by the end of March or early April, will also have details of processes relating to haircut and one-time settlement to be carried out by banks for faster resolution of high-value cases, citing an anonymous finance ministry official.
It added that joint lender forums (JLF) will also be overhauled since it has become a delaying tool. Current rules say that 75% of creditors by value and 50% in numbers need to approve a restructuring package before it can go through.