RBI asks banks to increase provisions in swaps
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.