New NPA Norms: RBI offers some breather

The Reserve Bank of India (RBI) has offered some leeway to banks for early detection and resolution of bad loans. Under the new regime kicking off from April 1, lenders can finance 50 per cent of the outstanding loan value. Earlier, Reserve Bank of India (RBI) had proposed to allow takeover of existing loans by new financiers at 60 per cent or more of the loan value. The central bank also diluted rules for accelerated provisioning it had proposed for non-performing accounts. Now lenders will make 25 per cent provision for unsecured loans that remain unpaid for six months. Initially, RBI had proposed 30 per cent provisions. Plus, for loans that have remained unpaid for two years, banks have to set aside 40 per cent, instead of 50 per cent.The new framework calls for early formation of a lenders’ committee with the timeline to agree to a plan for resolution. It also offers incentives for lenders to agree collectively and quickly to a restructuring plan. It will give better regulatory treatment of stressed assets if a resolution plan is underway. However, it will attract accelerated provisioning if no agreement can be reached. Seeking improvements in the current debt restructuring process, the framework allows independent evaluation of large value restructuring. This is for purpose of framing viable plans and a fair sharing of losses (and future possible upsides) between promoters and creditors.