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SBI Urges Govt to Ease Provisioning


Lender says RBI’s stringent provision norms will affect profit margins

The country’s largest bank, the State Bank of India, has written a letter to the finance ministry raising concerns over the stringent provisioning norms for companies under the Bankruptcy Code, which will eat into its profit margins. The lender is reluctant to meet these norms and has sought the ministry’s intervention on the matter.

Asenior executive with the lender confirmed the development and said that the government is expected to hold discussions with the Reserve Bank of India, state-run lenders and the Bankruptcy Board. An email sent to both SBI and RBI did not elicit any response till the time of going to press.

RBI, in a circular issued to banks on June 15, had stated that for accounts identified for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), lenders will need to make a minimum provision of 50% for the secured portion of the outstanding amount, plus an additional 100% on the unsecured portion.

Last month, RBI identified 12 stressed accounts, each having more than Rs 5,000 crore of outstanding loans and accounting for 25% of total NPAs of banks for immediate referral for resolution under the bankruptcy law.

“Under IBC, banks can initiate proceedings at the first instance of default to preserve the value, but if they are referred to National Company Law Tribunal (NCLT) then, under the recently issued guidelines by the regulator, we will have to make at least 50% provision, while the account is standard in our books,” the above quoted SBI official said. Under RBI rules, a loan becomes nonperforming if the interest or installment of principal rema- ins overdue for more than 90 days.

“So, if a bank is making the existing standard asset provision of 1%, it will be reluctant to refer the account to NCLT early because of the high provisioning requirement,” this executive said.The bank has also said that post any resolution under the IBC framework, banks should be permitted to upgrade the sustainable portion of debt to standard and should not need to make any further provisions.

“Banks should rather be allowed to reverse any such provisions made earlier as this will free up more capital and take on more such cases for resolution,” said another executive with SBI aware of the correspondence between the bank and the finance ministry. The bank has also demanded that if any other creditor takes the NCLT route, no additional provi- sioning should be mandated on that particular account.

Experts, however, disagree with the banks and say that the provisioning requirement of Rs 50,000 crore as being projected is on the higher side. “The concerns raised by the bank are short term and perhaps narrow,” said Sumant Batra, managing director – insolvency at Kesar Dass B & Associates.

Banks should not tie themselves on the provisioning issue but rather look to maximise the value that they may get by moving quickly under IBC, he added. “Also, these 12 cases will not form the benchmark given the fact that going forward we will have other kind of cases, which may not be under joint lenders forum, and the dynamics of these cases will be different from the existing ones,” he said.

The Economic Times New Delhi, 30th June 2017

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