Banks Want MPs, Finmin Officials to Help Convince RBI to Relax Norms

Banks Want MPs, Finmin Officials to Help Convince RBI to Relax Norms

Lenders seek a longer period — a minimum of 30 days — to start the resolution of a loan

Lenders led by the State Bank of India (SBI) have sought New Delhi’s intervention in convincing the banking regulator to relax the recent rules on stressed assets, arguing that the ‘harsh’ norms and zero tolerance of bad loans could affect future credit disbursements.During a two-hour meeting with Rajya Sabha members and senior finance ministry officials, bank chiefs suggested that the Reserve Bank of India (RBI) consider relaxing norms that require lenders to work on a restructuring plan a day after a company skips scheduled payments.

Bankers urged they be given a longer period — a minimum of 30 days — to start the resolution of a loan. They have also sought the government’s help to get the RBI to relax the rules regarding 100% consent from all borrowers for restructuring a loan within 180 days.According to the revised RBI rules issued on February 12, banks must work on a resolution plan from day one of a default, and relevant plans must be put in place within 180 days, failing which the loan has to be referred to the dedicated bankruptcy court.

Also, for a resolution plan to be considered valid, it has to be endorsed by all lenders in the consortium and the account can be upgraded only after the borrower repays 20% of the principal. These apart, the RBI also withdrew all debt restructuring schemes, such as converting outstanding debt into equity and giving longer tenure loans with a reset clause.Before they met the commercial bankers, Rajya Sabha members and finance ministry officials had a closed-door meeting with RBI governor Urjit Patel and deputy governor N S Vishwanathan.The second round of meeting was led by SBI’s chairman Rajneesh Kumar while the chiefs of many other public-sector banks were also present.

Banks for Relaxed Norms

“Although the government does not have a direct say on the regulation of banks, particularly those relating to accounting and recognition of bad loans, banks are hoping that they were able to convey their (concerns about their) precarious positions,” said a bank chief, who did not want to be named.The share of bad loans of banks has been rising steadily over the past three years, and has touched Rs 9 lakh crore. Many banks expect bad loans to cross Rs 10 lakh crore with the revised RBI rules kicking in.

The Economic Times, New Delhi, 11th April 2018

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