RBI’s new debt resolution framework could increase bank NPAs – Business Line–14.02.2018

The RBI’s new debt resolution framework could result in an increase in non-performing assets of banks, and consequently, in a heavier provisioning burden.
The reason: lenders will have to initiate insolvency proceedings if resolution plans for large stressed accounts, where aggregate exposure is ₹2,000 crore and above, do not work out.
Under the RBI’s revised framework for resolution of stressed assets, which was issued late on Monday evening, the banking regulator said banks will have 180 days to implement a resolution plan (RP) if a large account is in default as on the reference date (March 1, 2018).
If an RP is not implemented during the 180-day period, lenders will need to file an insolvency application under the Insolvency and Bankruptcy Code (IBC), within 15 days of the expiry of the timeline.
Referring to the failure of RPs of most borrowers from RBI’s second-list of 28 large stressed borrowers, resulting in them being referred under IBC, credit rating agency ICRA said this is expected to lead to a spike the credit provisioning requirements for banks during FY19.
In the case of other accounts where the aggregate exposure of lenders is between ₹100 crore and below ₹2,000 crore, the RBI said it will announce, over a two-year period, reference dates for implementing the RP to ensure time-bound resolution of all such accounts in default.
In our view, the revised framework on resolution of stressed assets is likely to increase the reported NPA levels of the banks in the coming quarter. This is likely to be an outcome of implementation of resolution plan for large borrowers that are currently under special mention account (SMA) categories,” an ICRA statement said.
Published on February 13, 2018

via RBI’s new debt resolution framework could increase bank NPAs – Business Line

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