NEW DELHI: The Ministry of Finance and the Reserve Bank of India (RBI) is likely to meet to discuss the issue of bad loan, as about Rs 3.38 lakh crore of loan might turn into a non-performing asset (NPA) and the majority of these are from the real estate, power and MSME sector.
“The finance ministry had instructed, no banks will declare any stressed loan account of MSMEs as NPA in this financial year. But in the next financial year, there has to be provided for such loans. This will increase the burden on banks in FY21 and will make NPA situation worse than anticipated. The ministry has been already informed about it and a detail discussion will follow,” said a senior official, Department of Financial Services.
The RBI had issued the prudential framework for the resolution of stressed assets for large accounts amounting loan of over Rs 2,000 crore through the June 7 circular this year.
According to the circular, banks have to make additional provisioning of 20 per cent if the resolution plan is not implemented within six months and another 15 per cent if a resolution plan is not implemented within a year, taking the burden of additional provisioning to 35 per cent. Majority of the loan is from the real estate, power and telecom sectors.
On September 19, Finance Minister Nirmala Sitharaman asked banks not to declare any stressed loan account of MSMEs as NPA till March 2020 and work on recasting debt.
A major portion of loan below Rs 1,500 crore includes exposure of banks to micro, small and medium enterprises (MSME) sector and there is no specific resolution mechanism for such loans.