New bad loan resolution framework to add Rs 2 lakh crore stress on banks

Analysts say the new norm will add over Rs 2 lakh crore worth bad loans to the existing pile of Rs 10 lakh crore.

Published: 15th February 2018 02:12 AM  |   Last Updated: 15th February 2018 05:58 AM   |  A+A-

JHf India (RBI) logo is seen at the entrance gate of its headquarters in Mumbai. | REUTERS

Image used for representational purpose. (File | Reuters)

By Express News Service

MUMBAI: The new NPA resolution framework announced on Monday, analysts say, will cause more short-term pain to the already stressed out bank balance sheets adding over Rs 2 lakh crore worth bad loans to the existing pile of Rs 10 lakh crore.

The increase in NPAs is due to two reasons:

One, RBI audit of banks’ balance sheets shows that lenders weren’t as forthcoming in recognising NPAs for FY17 and are now compelled to disclose them all.

Two, the revised framework dictates the if one bank treats a particular account as an NPA, other lenders in the consortium must follow suit. The norm ensures uniformity, but it is likely that the overall NPAs would balloon significantly this fiscal.

Moreover, the weekly reporting of default accounts with an aggregate exposure of at least Rs 5 crore ensures early identification, but puts pressure on banks to part with capital towards requisite provisioning. The first such weekly report shall be submitted for the week ended February 23. “The streamlining of the NPA resolution process affords simplicity, timeliness and credibility and is long-term positive for the banking sector,” said Krishnan Sitaraman, senior director, Crisil.

Lenders will now have to work out a resolution plan for defaults within 180 days, failing which the account would be referred to the bankruptcy courts.

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