Rules for loan restructuring and banks' provisioning requirement framework may see changes soon.
The Reserve Bank of India has decided to review the restructuring of advances and provisioning to accommodate latest international practices and accounting standards, which are continuously evolving, especially after the 2008 global financial crisis.
The banking regulator has formed a working group to review the existing norms on restructuring and told it to suggest necessary changes in step with international best practices.
An account, if restructured due to borrowers' financial difficulties, should be treated as being in default and re-classified as 'sub-standard assets' from 'standard assets'. But the central bank offers some leeways for the first time restructuring if banks follow RBI's prescribed format.
"Following successive interest rate rises, there are concerns over the quality of housing loans and SME loans. These loans may be needed to be restructured twice or thrice and so banks need to know how loans would be classified in such cases. The committee will look into these aspects," United Bank of India CMD Bhaskar Sen told ET.
The central bank had last revised the rules three years ago in August 2008, which helped both the lenders and borrowers during the economic downturns.
The Reserve Bank of India said it received requests from different stakeholders to review the existing guidelines in the light of the experience gained during the crisis period.
The banking regulator has also started work for devising a forward looking provisioning framework in step with the Basel Committee on Banking Supervision's (BCBS) prescription to introduce counter-cyclical capital and provisioning buffers as the global financial crisis has underscored the need for such cushions.
RBI has decided to issue a discussion paper by end-March 2012 on the proposed provisioning approach for comments from various stakeholders.
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