RBI’s NPA squeeze would scare away borrowers: Bank honchos

CHENNAI: The banking sector, reeling under NPA burden, has got a new problem to grapple with – RBI’s revised norms for resolution of stressed assets. According to experts, the new framework has not only put banks in a piquant situation, it will also make borrowers’ life difficult as the entire credit cycle is set to be disrupted. 

The new framework says if repayment is delayed even by one day, the account needs to be flagged as special mention account (SMA) and the information passed on to Central Repository of Information on Large Credits (CRILC). Plus, banks need to submit weekly reports to CRILC about defaulters. Banks are also supposed to identify incipient stress in loan accounts, classify them as SMA in case of default, implement resolution plan after getting board approval within 180 days.  “How can we do everything within 180 days? It’s impossible,” said a bank CEO who did not wish to be identified. In case of consortium loans, resolution plan must be supported by all members. “Earlier, there was JLF to discuss resolution plan. But RBI has disbanded it. Who will take the lead now?”

Now, restructuring of large accounts will need independent credit evaluation of the residual debt by RBI-authorised credit rating agencies. “Crediting rating is a step-by-step process. It can’t happen within RBI’s timeframe,” the banker added. 

RBI clarification likely, says IBA
Indian Banks’ Association, which has written to RBI expressing concerns on the new norms, expects the central bank to issue clarification soon. “We’re expecting some clarification on some of the issues we raised. Whether the clarification will include relaxation of rules is to be seen,” said V G Kannan, chief executive officer of IBA. He told Express the main point raised by IBA was that in cases where the resolution process has already started, banks need some relaxation in implementation. He said the bankers’ body may move another representation in case RBI rejects its proposals.