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HindustanTimes Mon,14 Jul 2014

Corporate debt norms get tough

HT Correspondent, Hindustan Times  Mumbai, October 30, 2012
First Published: 22:29 IST(30/10/2012) | Last Updated: 22:31 IST(30/10/2012)

In a move likely to hit companies such as Kingfisher Airlines and Deccan Chronicle, the Reserve Bank of India's (RBI's) move to increase the provisioning for restructured assets by 0.75 percentage points is likely to make lending to firms tougher.

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"The companies, which had problem in repaying past loans or have applied for restructuring will now find it difficult to get loans from banks, as banks would become wary of such firms," said Kajal Gandhi, banking analyst, ICICI Securities. "Even if they are able to convince a bank, they will have to pay higher interest on loans," she said.

"It has been decided to increase, with immediate effect, the provisioning for restructured standard accounts from the existing 2% o 2.75%," the RBI said in its second quarter review of the monetary policy on Tuesday. Detailed guidelines in this regard will be issued shortly, it added.

Recently, Deccan Chronicle had sought debt restructuring of loans but banks refused.

Now, banks will also be unwilling to go for restructuring of loans as it will dent their profitability, said bankers. "Now, banks will be reluctant to opt for loan restructuring as they will have to provide more for restructured assets, which will affect their margins," said a senior bank official.

According to experts, public sector will be impacted more by higher provisioning norms compared to their private peers. "Public sector banks will be impacted more because they have higher restructured assets in their books than private banks," said Gandhi.

Restructuring of standard assets for the entire banking system stood at Rs. 1,06,859 crore, or 2.66% of gross advances, as on March 2011, RBI data showed.


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