The Reserve Bank of India has ruled out any relaxation in rules for bad loan, saying the tough norms will discipline borrowers and prevent banks from pushing distressed loans under the carpet,
The message was conveyed by RBI governor Urjit Patel to parliamentarians in a closed-door meeting held in New Delhi on Tuesday, the report stated, citing two senior officials who did not wish to be named.
As per the revised rules, notified on February 12, banks have to take an immediate decision on resolution once an account shows initial signs of weakness.
Several bankers have termed the changes harsh and feared it would lead to a steep rise in the share of bad loans.
According to RBI’s new rules, banks must start working on a resolution plan from day one of a default and relevant plans must be put in place within 180 days.
“One reason why we introduced the revised guidelines is because we believe that IBC (Insolvency and Bankruptcy Code) has given the right framework to the resolution of stressed assets and the developments happening under it has given us the comfort that is will go in the right direction,” said RBI Deputy Governor NS Vishwanathan, at the post-policy press conference on April 5.
He pointed out that classifying non-repayment as default happens on the same day a borrower does not meet his payment obligations but classifying the account as non-performing only takes place 90 days after the loan is first defaulted on.
“So we do not think why this circular by itself should result in more NPAs coming,” Vishwanathan had said.
The RBI deputy governor defended the circular, and said that the central bank has withdrawn various resolution schemes (including SDR, S4A, CDR and others) that allowed converting outstanding debt to equity and giving longer tenure loans with a reset clause, as these were just postponing the NPA problem.
Under the revised rules, for a resolution plan to be considered valid, it has to be endorsed by all lenders in the consortium and the account can be upgraded only after the borrower repays 20 percent of the principal amount.moneycontrol