RBI asks banks to in­crease pro­vi­sions in swaps

The Pak Banker - - COMPANIES/BOSS -

The Re­serve Bank of In­dia on Fri­day asked lenders to spread out in equal in­stall­ments pro­vi­sions they make when they take over trou­bled loan ac­counts un­der a spe­cial re­struc­tur­ing pro­gramme to deal with stressed as­sets.

The RBI asked banks to build up over four quar­ters pro­vi­sions amount­ing to at least 15 per­cent of the loan for so-called strate­gic debt re­struc­tur­ing (SDR). In that pro­gramme, banks will swap part of the loan for ma­jor­ity own­er­ship of a trou­bled com­pany and then look for a new owner.

In­dian banks are cop­ing with $117 bil­lion of stressed loans. Crit­ics say the SDR pro­gramme helped banks cam­ou­flage the scale of the prob­lem, be­cause they did not have to make ex­tra pro­vi­sions and they would strug­gle to sell the com­pa­nies they were ac­quir­ing through debt-for-equity swaps. "Banks should build pro­vi­sions such that, by the end of the 18-month pe­riod.

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