The Reserve Bank of India(RBI)hascome out with yet another measure to ensure better real is ation of stressed assets by widening the market for their sales.RBI has allowed banks to sell these assets toother banks,non-banking financial companies,or financial institutions. Earlier, sales of stressed assets were restricted to securitisation companies/reconstruction companies.
But banks believe this is just another step,andit may take a while before it turn sout effective.
"At a time when most banks ares addled with high level sof bad loans,it is difficult to imagine they will be actively participating in the market to buy more stressed assets and then resolving them,"said the chief financial officer of a private sector bank.
However, these new norms may bring down sale of stressed assets to asset reconstruction companies(ARCs).
"Banks will have to continue to make loan-loss provisions even if they sell stressed assets to ARCs.This is an important gap the RBI is trying to plug;it should have happened a long time ago.However,banks will not have the motivation to sell stressed assets now,as ARCs arealsousing Sarfaesi Act and so are the banks to recover money. And with this provision, advantage also gone,I donot see why banks would be interested in selling stressed assets to ARCs,"said another banker. Sarfaesi Act is Securitization and Reconstruction of Financial Assets and Enforcement of Security InterestAct.There gulator has directed that from April1,2017,when securitisation receipts value is more than 50 percent of the amount of assets sold,the bank needs to make higher provisioning,which should either be net asset value declared by securitisation companies or reconstruction companies or provision in gas if it was a direct loan exposure.However,fromApril1, 2018,the threshold of 50percent will be reduced to 10percent.
Abhizer Diwanji,partner and head,financial services, EY,says these guidelines will mainly help ensure the sales of assets to ARCs increasingly happen in cash."RBI wants to make the market more liquid and with this change in provisioning requirements,banks will indulge in cash sales as there has been a change in provisioning requirements with respect to securitisation receipts." In the past few years,RBI has comeout with measures toresolvebadloans.Banks andthemarketagreethese are steps in the right direction but it may take years for them to be effective.Experts say though there gulatoris trying to comeout with tools and ensure more participants in the market, one really needs an effective turn around plan,which is yet to be seen.
"We view this move from RBI as positive as it asks bank boards to take faster action on non-performing loans to ensure the value of collateral is not impaired significantly. However,we are not too sure of the appetite for selling loans in 2018-19 if there is a gradual recovery in the economy,"said Kotak Institutional Equities.
Business Standard new Delhi,03th September 2016
Abhizer Diwanji,partner and head,financial services, EY,says these guidelines will mainly help ensure the sales of assets to ARCs increasingly happen in cash."RBI wants to make the market more liquid and with this change in provisioning requirements,banks will indulge in cash sales as there has been a change in provisioning requirements with respect to securitisation receipts." In the past few years,RBI has comeout with measures toresolvebadloans.Banks andthemarketagreethese are steps in the right direction but it may take years for them to be effective.Experts say though there gulatoris trying to comeout with tools and ensure more participants in the market, one really needs an effective turn around plan,which is yet to be seen.
"We view this move from RBI as positive as it asks bank boards to take faster action on non-performing loans to ensure the value of collateral is not impaired significantly. However,we are not too sure of the appetite for selling loans in 2018-19 if there is a gradual recovery in the economy,"said Kotak Institutional Equities.
Business Standard new Delhi,03th September 2016
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