RBI unlikely to ease Provisioning load for Banks

RBI strict on NPAs classification and Provisioning

We must have been witnessing a free fall in the Stock prices of Public Sector Banks in the recent few days, this is majorly because RBI has been firm on the stance of provisioning against the Bad Loans classified by the Banks. However the bigger challenge is that even the Banks do not know how much Bad Loans they have in their Balance Sheets.

The advances which have expressly become bad can be provided for, but what about those advances which are yet to become bad due to the rippling effects!!

  • Banks are hoping to escape Provisioning norms by RBI on its stressed assets
  • However, RBI shall soon direct lenders to set aside 50% provision on Stressed Loans and 100% where National Company Law Tribunal (NCLT) offers for insolvency proceedings.
  • 50 Stressed companies which accounts for 4 Lakh crore stressed load are from Metal, Construction and Power Industries,
  • Stressed Assets includes NPAs + Restructured Loans + Wrtiiten off Assets.
  • NPAs in context to Bank means any credit facility on which borrower is unable to repay back principal and interest installment and remain unpaid for specific time period.
  • NPAs are further categorised to Standard, Sub-Standard, Doubtfull and Bad Assets accordingly.