Skip to main content

Bank not excited on wider market for Stressed assets

By
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

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more