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The Reserve

Bank of India

(RBI) has informed banks that some of the modificationsallowed to facilitate

restructuring

of non-performing assets(NPA) in view of theongoing downturn in the Indian economy will be withdrawn from July 1 2009.

“The circulars dated December 8, 2008, January 2, 2009 and February 4, 2009 for restructuring of accounts will cease to operate from July 1, 2009. Thereafter, restructuringof all

accounts will be governed only by the provisions of circulars dated August 27,2008, November 3, 2008 and April 9, 2009.,’’ said RBI on Friday.RBI has clarified that the cases where the

accounts

were standard as on September 1,

2008 but slipped to NPA category before 31st March 2009, these can be reported asstandard as on March 31, 2009 only if the restructuring package is implemented before31st March 2009“All those accounts in case of which the packages are in process or have been approved

but are yet to be implemented fully will have to be reported as NPA as on March 31, 2009if they have turned NPA in the normal course,’’ RBI said.However, in any regulatory reporting made by the bank after the date of implementationof the package within the prescribed period, these accounts can be reported as standardassets with retrospective effect from the date when the reference was made to the creditdebt restructuring (CDR)cell in respect of cases covered under the CDR Mechanism or when the restructuring application was received by the bank in non-CDR cases.In this regard, it may be clarified that reporting with retrospective effect does not meanreopening the balance sheet which is already finalised; what it means is that in allsubsequent reporting, the account will be reported as

standard

and any provisions made because of its interim slippage to NPA can be reversed.RBI has also asked banks to provide extra information about the application received up to March 31, 2009 for restructuring, in respect of accounts which were standard as on September 1, 2008.The banks will also furnish proposals approved and implemented as on March 31, 2009and thus became eligible for special regulatory treatment and classified as standard assetsas on the date of the balance sheet along with . proposals under process/implementationwhich turned NPA as on March 31, 2009 but are expected to be classified as standardassets on full implementation of the package.Meanwhile in another circular RBI has said for determining the amount of unsecuredadvances for reflecting in the published balance sheet, the rights, licenses, authorisations,etc., charged to the banks as collateral in respect of projects (including infrastructure projects) financed by them, should not be reckoned as tangible security. Hence suchadvances shall be reckoned as unsecured.Banks should also disclose the total amount of advances for which intangible securitiessuch as charge over the rights, licenses, authority, etc. has been taken as also theestimated value of such intangible collateral. The disclosure may be made under a

separate head in “Notes to Accounts”. This would differentiate such loans from other entirely unsecured loans., RBI said.

RBI refuse to relax NPA norms

Vaibhav Aggarwal

Feb 4, 2009

TheReserve Bank of India(RBI) has declined to relax the norms for identifying a loan as non-performing assets (NPAs) if the payment is overdue for 180 days as compared to the presentduration of 90 days.Sources in the industry said that the Central bank has turned down to relax the rulesbecause it is trying to bring the prudential norms in Indian banking in line with the internationalstandards. "Therefore, diluting the NPA norms for SMEs is not considered as a step in the rightdirection at this juncture," said RBI in a letter issued to the Indian Banks Association (IBA).Companies, especially the small and medium enterprises (SMEs) had asked RBI to relax theNPA norm and increase the overdue date from 90 days to 180 days. This suggestion was givenby SME in the backdrop of liquidity crunch faced due to a demand slowdown in both domesticand overseas markets.However RBI turned down the SME suggestion and said that it has taken "multi-dimensionalsteps" to infuse liquidity into the system and thereby ensured credit availability to productivesectors of the economy. It feels that such a move is likely to hamper the financial health of thebanking industry.At the same time RBI also declined on a proposal that would allow all term loans extended toSMEs for one year to freeze.Industry sources claim that the Central bank has already permitted banks to categorize loansas a standard asset if they are restructured twice. Further the RBI said that tightening of norms, improvement in asset origination and strict monitoring and recoveries have enabledbanks to avoid the NPAs. The gross NPA as a percentage of gross advances declined from 5.2%in 2005 to 2.3% in 2008 but gross NPAs in 2008 increased. This was the first time gross NPAsfor the Indian banking sector increased since 2001-02.Banks have been witnessing an increasing credit growth from the last three years but at thesame time bad debts had also been rising with the credit growth.Earlier banks had asked RBI to relaxNPA norms for the real estate sector.Banks wanted RBI to declare a standardized norm for restructuring debt to realty companies in order to avoid thechances of loans extended to troubled real estate companies from turning bad loans.

RBI turns down plea to relax NPA norms

Abhijit Lele / Mumbai February 2, 2009, 0:23 IST

The Reserve Bank of India (RBI) has turned down suggestions to relax rules for recognising non-performing assets (NPAs) by doubling the duration to 180 days. RBIfeels such a move will affect banks’ financial health.At present, banks treat a loan as an NPA if the payment is overdue for 90 days.Companies, especially small and medium enterprises (SMEs), had suggested that a loanshould be treated as an NPA if it was overdue for 180 days.SMEs had suggested the move because they were facing cash flow problems due to aslowdown in demand in domestic and overseas markets, resulting in repayment problems.The central bank was unlikely to agree to this relaxation, said sources close todevelopments, because of its efforts to align prudential norms in Indian banking withinternational standards.“Therefore, diluting the NPA norms for SMEs is not considered as a step in the rightdirection at this juncture,” RBI said in a letter to the Indian Banks’ Association, theindustry lobby that had communicated SMEs’ demands.The central bank has also turned down a proposal to grant moratorium on all term loansextended to SMEs for one year.Explaining why it had decided against the move, RBI said “multi-dimensional steps”have been taken to infuse liquidity into the financial system to ensure credit availabilityto productive sectors of the economy.Sources added that RBI has already allowed banks to classify loans, which arerestructured twice, as a standard asset.RBI said tightening guidelines, improvement in asset origination and stringentmonitoring and recoveries have helped banks rein in slippages. As a result, its data showthat gross NPAs as a percentage of gross advances have declined from 5.2 per cent in2005 to 2.3 per cent in 2008.However, the last financial year saw gross NPAs for the Indian banking sector rise for thefirst time since 2001-02.