Skip to main content

RBI wants banks to make more provisions even for good loans


The Reserve Bank of India (RBI) on Tuesday advised banks to consider setting aside higher provisions even for good loans in stressed sectors. The advisory means the central bank is worried that banks have not fully recognised their bad loans, said experts.

Indian banks are sitting on a toxic loan pile of at least Rs 7 lakh crore, or 9% of all bank credit.

The RBI specifically redflagged the telecom industry, and asked bank boards to review their exposure to the sector by June 30 and consider making provisions at higher rates “so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date.” This means banks should consider making higher provisions immediately for the telecom sector.

Under current rules, most standard assets attract a provision of 0.4%. The few exceptions include credit to commercial real estate – which has a 1% provision, and residential real estate (0.75%). However, RBI hasn’t specified the extent of higher provisioning for good loans to telecom or other stressed sectors.

“We are not surprised that banks will see higher provisioning going forward. We have already accounted for a potential jump in fresh slippages of 2.6% of total bank loans in the next 12 months,” said Udit Kariwala, analyst,financial institutions at India Ratings & Research. In a February 15 report, the agency had said that impaired assets would peak at 12.5-13% by 2018-19.

The central bank has also asked banks to put in place a board-approved policy for making higher provisions depending on the stress in various sectors. This policy should be reviewed every quarter depending on the performance of the sectors to which the bank has an exposure, the central bank said.

Currently, bank lending to the telecom sector stands at around Rs 82,200 crore. The industry has been going through a tumultuous period with the launch of services by Reliance Jio Infocomm Ltd. A February 17 India Ratings and Research Report had predicted that the industry has lost about 20% of revenues post the launch of free services by Jio. The industry’s debt levels have risen sharply from Rs 2.7 lakh crore in 2014 to Rs 4.85 lakh crore at the end of December 31, 2016.

“The new regulation will increase credit cost for banks,” said Karthik Srinivasan, senior vice-president, Icra Ltd.

In a separate notification, the regulator also increased disclosure norms for banks after it noted instances of divergences in banks’ asset classification and the provisioning required as per RBI norms. “This has led to the published financial statements not depicting a true and fair view of the financial position of the bank,” the regulator said.

The Hindustan Times New Delhi,19th April 2017

Comments

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6

Jaitley plans to cut MSME tax rate to 25%

Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem

Don't forget to verify your income tax return in August: Here's the process

  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s