NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News  » Business » How RBI plans to curb rising bad loans

How RBI plans to curb rising bad loans

December 17, 2013 18:59 IST

To contain rising bad loans, the Reserve Bank on Tuesday proposed a slew of measures, including incentives to lenders for coming together and tackling an account timely and penalising borrowers with higher interest rates in future for not cooperating for a resolution.

An RBI discussion paper, which is open for public comments till January 1, suggests an early formation of a lenders committee with timelines to agree to a plan for resolution and incentives for lenders to agree quickly to a plan through "better regulatory treatment" of stressed assets.

If bankers fail to reach a resolution plan, the assets in question will attract accelerated provisioning, it says.

The development comes amidst fear of bad loans hitting a record high of around Rs 2.9 trillion by the end of the fiscal or 4.5 per cent of the total banking assets.

RBI Governor Raghuram Rajan had earlier expressed his resolve to correct imbalances in the system.

The paper 'Early recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy', also suggests an improvement in the current restructuring process.

Proposals include an independent evaluation of large value restructuring with a focus on viable plans and fair sharing of losses between promoters and creditors.

Promoters refusing to cooperate with the lenders in resolution of the stress will find their future borrowings becoming more expensive, the paper suggests.

On the asset sales front, the RBI has shown readiness in allowing a lender to spread any loss over two years provided the loss is fully disclosed and allowing leverage buyouts by specialised entities.

It also suggests takeout financing/refinancing possible over a longer period and not construing it as restructuring.

Apart from the liberal attitude in allowing leveraged buyouts, it says sector specific companies and private equity firms will be "encouraged" to "play active role in stressed assets market". 

© Copyright 2018 PTI. All rights reserved. Republication or redistribution of PTI content, including by framing or similar means, is expressly prohibited without the prior written consent.