RBI makes loan recast tougher for Banks

Tightening the grip on banks rescheduling loans to help companies that have not been able to service their debt, the Reserve Bank of India (RBI) increased the share of the amount they have to set apart from 2% to 5%.

Tightening the grip on banks rescheduling loans to help companies that have not been able to service their debt, the Reserve Bank of India (RBI) increased the share of the amount they have to set apart from 2% to 5%. This is a bid to control non-performing assets or NPAs — which are loans that stop yielding interest. NPAs have been a major concern for India’s public sector banks amid an economic downturn.

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“It has now been decided to increase the provision to 5% in respect of new restructured standard accounts (flow) with effect from June 1, 2013,” a notification said.

The new rule will impact the profitability of banks as they will have to set aside more money for provisioning.