In a much-needed relief to stressed banks, the Reserve Bank of India (RBI) has decided to ease the provisioning norms relating to loses arising out of sale of bad loans to asset reconstruction companies (ARCs).
According to the existing norms, if the sale of bad loan to asset reconstruction companies is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall could be debited to the profit and loss account over a two-year period subject to necessary disclosures. However, banks were allowed this provision only for bad loans sold to asset reconstruction companies up to March 2015. The RBI has now allowed banks to spread losses on sale of bad loan to such ARCs up to March 2016.
