Skip to main content

Next set of NPAs must have credit rating: RBI

Next set of NPAs must have credit rating: RBI
Tough to comply with the norm, say bankers

Aresolution plan finalised for the next set of stressed assets identified by the Reserve Bank of India (RBI) will be subject to a rating requirement if the plan for resolving their bad debts falls outside the scope of the Insolvency and Bankruptcy Code (IBC).

The central bank has conveyed to the banks that if any resolution plan is finalised outside the ambit of the IBC, the residual debt would have to be rated as investment grade by two external credit rating agencies for bank loan rating.

In case the plan fails to get the rating, the accounts would be referred for resolution under the IBC before December 31.

Though there has been no official communication to the companies regarding this rating requirement, they have been informally informed about this by the lenders, who would appoint credit rating agencies for this.

The RBI, in its letter dated August 28, reminded banks about the resolution of non-performing assets (NPAs) other than the 12 identified for immediate reference for resolution under the IBC, by December 13. If the deadline of December 13 is not met for the accounts, a list of which has been drawn up by the central bank, it would be referred for resolution under the IBC by December 31.

The rating requirement is being viewed by different stakeholders differently. “Earlier, the RBI had given a list of 12 companies for resolution and the latest letter is basically a follow-up on that. The consortium of lenders will take a view on each of the companies. For other companies too, quite a few could go to the National Company Law Tribunal (NCLT), as most of the accounts have been declared NPAs. If the credit rating exercise is done, there is no question of a good rating,” UCO Bank Managing Director and Chief Executive Officer R K Takkar said. A company which was understood to be on the second list of the central bank, however, said that the intention was to confirm that the debt was sustainable and it would not translate into another postponement in resolution.

“The bigger issue is whether the lenders want to finalise a resolution outside the IBC. They have basically three options: Restructuring the loan, selling it to an asset reconstruction company, or go to the NCLT. Whether the banks want to exercise any option outside the IBC will probably emerge sometime in October and then they will have close to two months to finalise,” the company said.

An interim resolution professional also said that a credit rating would ensure the resolution plan was implemented and didn’t fail.

The first 12 accounts were responsible for one-fourth of the bad loans in the banking system, or about Rs 2 lakh crore.

The next set of 40 accounts might have caused bad debts of about Rs 2.5 lakh crore.

The Business Standard, New Delhi, 11th September 2017


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…