RBI gets tough on loan overhauls... | india | Hindustan Times
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RBI gets tough on loan overhauls...

india Updated: Jul 20, 2012 22:48 IST
HT Correspondent
HT Correspondent
Hindustan Times
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An Reserve Bank of India (RBI) working group has recommended tighter norms for loan restructuring for banks and non-banking finance companies including higher loan-loss provisions and greater 'sacrifice' by founders or controlling shareholders of indebted companies.

It recommended that banks should set aside 5% of total assets for standard loans that are restructured, up from 2%, while provisions for loans already restructured be increased to 5% over two years.

The panel also recommended banks should seek personal guarantee from promoters and adopt a carrot-and-stick policy while restructuring such loans.

"As stipulating personal guarantee will ensure promoters' skin in the game, obtaining the personal guarantee of promoters be made a mandatory requirement in restructuring cases," the panel report stated, on which comments of stake holders are invited by Aug 21.

The RBI had in January set up the panel, headed by RBI executive director B Mahapatra, to review the prudential guidelines on restructuring of advances by banks and financial institutions and suggest modifications taking into account best international practices and accounting standards.

The working group suggested that conversion of debt into preference shares be done as a last resort and only for listed companies, while classification of such loans as bad or non-performing will be considered after two years.

... and turns heat on foreign banks
The RBI on Friday announced an increase in the priority sector lending targets for MNC banks with 20 or more branches to 40% of net bank credit from 32%.

"Foreign banks with 20 or more branches will be put on par with domestic banks for priority sector targets over a maximum period of 5 years from Apr 1, 2013," said the RBI.

Citibank, HSBC and Standard Chartered Bank have more than 20 branches in India.