Banks will have to gear up now for meeting stiffer provisioning norms. In a significant move that can impact the bottomline of most banks, especially ones with weak capital adequacy ratio, RBI on Tuesday raised banks’ provisioning requirement to 2.75% as against the existing 2% on restructured standard loan accounts.
What this means is that banks from now onwards will have to set aside more capital in case of restructured standard loans. A loan is classified as a restructured loan when the terms of loans are changed following mutual agreement between the borrower and lenders.
Banks such as State Bank of India, Punjab National Bank, Bank of India and Indian Overseas Bank, which have seen a sharp rise in stress loans in the recent quarters are most likely to be affected by the move. According to RBI data cumulative ‘standard restructured’ advances have almost doubled from `60,379 crore as on March 2009 to `1,06,859 crore as on March 2011.
Shares of most banks including SBI, ICICI Bank, PNB, Bank of Baroda, Axis Bank took a major hit and closed with losses of 2-5.50 per cent.