Top Lenders Meet RBI Brass, Seek Re­lax­ation in Bad Loan Norms

But the reg­u­la­tor sticks to its stand on road map to clean up bank books by March 2017

The Economic Times - - Companies - San­gita.Me­hta@ times­group.com

Mum­bai: Ahead of the March quar­ter earn­ings sea­son, which may see many banks’ prof­its col­lapse, top lenders met the Re­serve Bank of In­dia’s (RBI) ex­ec­u­tives seek­ing re­lax­ation in bad loan norms. But the cen­tral bank seems to have stood its ground on the road map to clean up bank books by March 2017.

On Tues­day, se­nior bank of­fi­cials, led by State Bank of In­dia chair­man Arundhati Bhat­tacharya, sought ap­proval from the cen­tral bank that they should be al­lowed to seg­re­gate loans of dis­tressed com­pa­nies which RBI forced them to recog­nise in two parts — sus­tain­able loans and un­sus­tain­able loans.

They pro­posed that the sus­tain­able loans could be clas­si­fied as stan­dard loans, while the un­sus­tain­able ones as non-per­form­ing loans. The lenders will first at­tempt to sell the as­sets of a com­pany to re­cover dues, fail­ing which they would write off that por­tion of the loan over a pe­riod of time. This would help them pro­vide less for bad loans.

The banking in­dus­try, as a whole, may see its prof­its col­lapse, with state-run banks’ net profit crash­ing 87% in the March quar­ter, while pri­vate banks may re­port a 5% growth, fore­casts Ko­tak In­sti­tu­tional Eq­ui­ties. Rev­enue for pri­vate banks may ad­vance 15%. And for state banks, it may fall 3%, it said. Last De­cem­ber, RBI un­der­took an asset qual­ity re­view (AQR), where it listed out 150 com­pa­nies, which are un­der stress and di­rected banks to make proac­tive pro­vi­sions.

As a re­sult, banks were re­quired to make huge pro­vi­sions, which took a toll on their bot­tom­line. Due to higher pro­vi­sions, a num­ber of banks re­ported record losses — while Bank of In­dia and IDBI Bank re­ported a loss of .₹ 1,505 crore and .₹ 2,183 crore, repec­tively, Bank of Bar­oda and In­dian Over­seas Bank posted a loss of .₹ 3,342 crore and .₹ 1,425 crore, re­spec­tively. The AQR would re­quire banks to make higher pro­vi­sion­ing in the third and the fourth quar­ters of 2015-16. A num­ber of cor­po­rates have knocked on the doors of banks stat­ing that they have a huge share of un­sus­tain­able debt and have pro­posed banks to con­vert that por­tion into equity. This has prompted bankers to ap­proach RBI seek­ing a spe­cial dis­pen­sa­tion on clas­si­fi­ca­tion of un­sus­tain­able debt.

Thus, for ex­am­ple, if a com­pany has .₹ 9,000crore loans, based on the per­for­mance if it is con­cluded that they can pay just about .₹ 5,000 crore, then banks would clas­sify this .₹ 5,000 crore as ‘sus­tain­able loans’. The bal­ance of .₹ 4,000 crore would be clas­si­fied as ‘un­sus­tain­able loans’ and banks will clas­sify them as bad loans.

RBI’s ex­ec­u­tives have shot down the pro­posal on grounds that this could be an ob­sta­cle in clean­ing up bank books. At the same time, the pro­posal made by the banks shows that lenders are des­per­ate to make ev­ery at­tempt to show bet­ter per­for­mance, con­sid­er­ing that most banks are ex­pected to re­port losses or a sharp dip in prof­its in the fourth quar­ter of 2015-16.

The meet­ing was chaired by two RBI deputy gov­er­nors — SS Mun­dra and R Gandhi. Among lenders, be­sides the SBI chief, In­dian Banks’ As­so­ci­a­tion chair­man Ash­wani Ku­mar and Dena Bank and se­nior of­fi­cials from ICICI Bank and some pub­lic sec­tor banks were also present.

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