The Reserve Bank of India has asked banks to install a robust mechanism to identify stressed accounts and promptly restructure viable cases to preserve the economic value.
The central bank has also mandated banks to have a proper system-generated segment-wise data on their NPA accounts, write-offs, compromise settlements, recovery and restructured accounts. The move comes after the central bank said in its annual financial inspection in March that restructuring facilities are not extended to small accounts.
Corporate loan accounts that needed to be restructured hit a nine-year high of 50,250.22 crore in 2011-12 with the corporate debt restructuring (CDR) cell.
Rising interest rates and the increasing debt burden have affected the repayment capacity of companies forcing RBI to review the NPA management mechanism in banks.
The central bank is expected to issue detailed guidelines separately. In January, the central bank constituted a working group to review guidelines on restructured advances. The report is expected to submit its recommendations by end of July.
"CDR has increased very significantly. It does represent a stress in the system. But, at the same time, the evidence shows that the accounts have been restructured and have remained standard after restructuring.
Out of this, the slippage is not more than 15% and even after taking an outer limit of 20%, 80% of the restructured assets are proved to be good assets," said Anand Sinha, deputy governor, RBI. "But, if the account is under stress you only have two options: either call back the advance, which is not correct if the account is viable, or if it is not, you have to restructure it. So, rescheduling should not be seen with negativity," said Sinha. RBI's working group has had three meetings so far.
"The issues discussed revolve around the sacrifice banks have to make in a restructuring. Members of the committee are taking into account the international best practice,'' said a banker.
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