NPA's not alarming but need clarity on restructured assets: banks tell RBI

Mumbai: Top bankers on Wednesday sought more clarity from RBI about classification of bad accounts and demanded that they be given flexibility in dealing with restructured loans.

“Today, there is a lot of mystery about what is a restructured asset. Everything restructured is seen as equivalent to NPA (non-performing asset) … the restructuring definition should have a timeline,” State Bank of India Chairman Pratip Chaudhuri told reporters outside the RBI headquarters after a two-hour-long meeting with the Reserve Bank officials.

“We wanted that RBI gives clear guidelines so that when the auditors come in there is no confusion and there is no divergence in approach,” he added.The Chairman of the largest lender, which in December reported a near 90 percent spike in NPA provisions, said the banks pointed out to RBI that after the probation period, if an account performs alright, it should not be branded as restructured for all the time.

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Chaudhuri attended a specially-convened meeting with RBI Deputy Governor K C Chakrabarty called to assess the bad asset situation in the banking system. Chaudhuri further said the classification of a recast account is a “gray area” now and hence banks have requested for a timeline of a year-long regular repayment by the restructured account to turn it as a standard asset.

[caption id=“attachment_230042” align=“alignleft” width=“380” caption=“Bankers also told RBI in the current economic environment they could end up piling up more bad debts but the overall situation is under control. AFP”]  [/caption]

It can be noted that a re-classification of accounts will help banks conserve capital as a restructured account demands more provisioning as opposed to a standard one.

Due to elevated interest rates and general economic slowdown, many borrowers have been unable to service their debt obligations and have been undergoing restructuring. Sectors like textiles, state-run power distribution companies (discoms), aviation, steel, mining, telecom tower business, among others, are facing difficulty due to project delays and higher debt servicing costs. Chaudhuri said a re-classification into becoming a standard asset is in sync with global banking standards. He also said a committee appointed by the RBI is looking into the issue at present.

He said RBI asked banks to carry out restructuring in case of smaller accounts as well but added that it is difficult operationally given the nature of the borrowers.

Coming out of the meeting, Chaudhuri said that bankers had told RBI that textiles, steel, mining and aviation are the broad sectors witnessing stress.

It can be noted that a string of sectors have been witnessing stress following which many a bank, majority of them state-owned, have found a hit on their bottomlines due to higher provisioning in the past two quarters. Broadly, the rising NPAs have been blamed on elevated interest rates (RBI increased its key rates a record 13 times for 19 months till October 2011), slackening pace of economic growth and migration to system-based NPA generation at many state-owned lenders.

As a result, most of state-run banks have been forced to almost double their provisioning with sectors like aviation having over Rs 90,000 crore in debts with a large part in bad assets. Air India alone has a debt of over Rs 67,000 crore, Kingfisher over Rs 10,000 crore in NPAs, textiles and power have a debt of Rs one trillion each, and telecoms have nearly Rs 17,000 crore of bad loan from one company (GTL) alone, and heavy debt running into nearly another trillion (RCom alone has over Rs 33,000 crore debt.

On the present liquidity situation, Chaudhuri said it is a “little difficult” and it is expected to worsen as we move closer to March 15 when the last instalments of advanced taxes are to be paid. The system is likely to see an outgo of over Rs 60,000 crore on this account alone.

Asked about his expectations from the the RBI given the stress, Chaudhuri said the central bank should consider a cut in CRR (cash reserve ratio or the amount of deposits parked with RBI) or SLR (statutory liquidity ratio or the amount of deposits to be held in government bonds) or some other liquidity infusion measures.

PTI