The Reserve Bank of India (RBI) has directed commercial banks to accelerate provisioning requirement, from April 1, for the existing stock of restructured loans that are showing signs of stress.
RBI has identified bank specific accounts in which respective lenders have to make higher provisioning from April 1. These accounts were restructured earlier. Banks have provided only 5 per cent for these restructured loans, but now the central bank has directed them to increase the provisioning by 2.5 per cent every quarter so that by March 31, 2017, provisioning reached the 15 per cent level — in line with sub-standard accounts. However, banks are not allowed to classify these accounts as non-performing assets.
The central bank has given four quarter to banks, starting April 1, to make full provisioning for the identified accounts, so that a bank is not hit in one go. Several bank chiefs The Hindu spoke to confirmed the central bank’s communication of higher provisioning from April 1.
The central bank’s move comes in the back drop of RBI Governor Raghuram Rajan’s drive to clean up banks’ balance sheets by March 2017.
In February 2014, the central bank issued a set of guidelines on joint lenders’ forum and laid out a corrective action plan with the objective of revitalising distressed assets in the banking system. In that circular, RBI had said that banks have to face accelerated provisioning if the borrower’s account continues to show weakness. The step to increase provisioning is seen in line with the accelerated provisioning requirement, bankers said.
Banks are already facing profitability pressure due to higher provisioning for bad loans. RBI had identified several accounts during an asset quality review and asked banks to classify those as NPA in the third and fourth quarter of the current financial year.
As a result, five out of eight public sector banks that have announced October-December quarter results, reported heavy losses.
These are Indian Overseas Bank, Syndicate Bank, Dena Bank, Allahabad Bank and Central Bank of India. The others who reported profit are also not in good shape. Punjab National Bank, for example, which reported only Rs.51 crore profit despite a Rs. 909 crore tax write back, saw its gross NPA climb by Rs.10,000 crore during the quarter. Among private sector banks, ICICI Bank faced the heat, reporting a 70 per cent year-on-year increase in gross non-performing assets to Rs.21,149 crore.
The Indian banking sector, particularly the public sector banks, have seen a sharp rise in their non-performing assets in the last three years.
According to RBI data, stressed assets, that is gross NPA plus standard restructured advances, as a percentage of gross advances moved up to 11.1 per cent as on March 2015 as compared to 9.2 per cent two years back. Public sector banks share a disproportionate burden of the stress.
