Banks may get leeway in treatment of assets if they are able to detect stress in accounts and work out a corrective strategy before they turn bad, according to a proposal by the Reserve Bank of India.
The central bank has also mooted penalties like accelerated provisioning if lenders fail to do so. Also, borrowers who do not cooperate with lenders in resolution will have to make do with more expensive loans in future.
RBI, on Tuesday, released a discussion paper listing out ways for early detection of non-performing assets (NPAs). Incentives include permission to spread loss on sale of assets for over two years, takeout financing or refinancing for a longer period and leveraged buyouts of stressed companies.
Before classifying a loan as an NPA, banks will need to list it under Special Mention Accounts (SMAs). It will have three sub-categories depending upon the degree of stress. For instance, whether there was any non-financial stress or the interest and principal was overdue for 31-60 days or 61-90 days.
In case the principal and interest for an account are overdue for 61-90 days, the banks involved would need to come together in a Joint Lenders’ Forum and formulate a Corrective Action Plan (CAP). Banks would have to do the same in case accounts in other two categories do not show improvement.
The CAP would decide the fate of the account, whether it could be rectified, restructured or if there is a need to kick-start the recovery process. That way, banks will get a chance to realise higher loan amount through sale of assets.
RBI also spelled out ways for better functioning of asset reconstruction companies and debt recovery tribunals. RBI said private equity firms could also be encouraged to play an active role in stressed assets market.
It will be mandatory to form a JLF if the aggregate fund based and non-fund based exposure is of Rs 100 crore and above.
RBI would set up a Central Repository of Information on Large Credits (CRILC) to collect, store and disseminate credit data to lenders. Banks will have to provide information on all their borrowers having aggregate fund-based and non-fund based exposure of Rs 5 crore and above.
“In addition, banks will have to furnish details of all current accounts of their customers with outstanding balance (debit or credit) of Rs 1 crore and above,” said RBI in the paper.
RBI advised banks to write off accounts wholly or partially only as the last resort. In case they do, the remaining part of the loan should not be shown as standard asset.