The Reserve Bank of India’s (RBI) draft guidelines on corporate loan restructuring, if implemented in the current form, would increase banks’ provisioning requirement by Rs 15,000 crore in the next two years and lower their profit around 7 percent.
According to the draft proposals from the RBI, banks’ provisioning on loan restructuring has to at 5 percent, a sharp increase from the present requirement of 2.75 percent. The deadline for the implementation is April 1.
Crisil, however, sees two positives from the guidelines: withdrawal of regulatory forbearance for restructured loans from April 2015 and the tightening of the process of restructuring.
“These stipulations will enhance the confidence of stakeholders in banks’ asset quality and discourage large-scale restructuring activity,” it said in a press release.
The rating agency had earlier projected loan restructuring to reach Rs 3.25 lakh crore by March 2013.
The cumulative loan restructuring from April 2011 touched Rs 2.25 lakh crore by December 2012, it said.
It expects loan restructuring to continue over the near term, albeit at a slower pace.
The provisioning requirement of Rs 15,000 crore has been arrived at by taking into account the combined impact of higher provisioning on existing stock of restructured loans and expected incremental restructuring.
It sees a greater impact on public sector banks as they account for around 85 percent of the total loan restructuring.
The guidelines also provide an adequate transition period for banks to adapt to the new regulations.
“The continuation of asset classification benefits to banks for their restructured under-construction infrastructure project loans beyond March 2015 provides them with some breathing space,” Suman Chowdhury, director, Crisil Ratings, was quoted as saying in the press release.