In light of the working group report on restructuring guidelines, the central bank hiked the provisioning for restructured asset. With a view to contain risks associated with the spiraling restructured loans of Indian banks, especially Public Sector Banks , RBI in September this fiscal appointed a working committee, which recommended the provisioning requirement on standard restructured assets to be hiked to 5% in a phased manner, over a period of two-year. The committee suggested a hike of 3.5% at the end of the first year and 5% in the second year. However, the central bank partially accepting the suggestion increased the provisioning norms to 2.75%.
Meanwhile, the new norm, effective immediately, are expected to impact the banks, especially Public Sector Banks, which have witnessed an unprecedented rise in loan restructuring due to economic stress of their borrowers. In the report, its stands to be highlighted that RBI’s this move is calculated to impact profit before tax (PBT) of Public Sector Banks for the current fiscal by between 1.5% and 4.5%. Further, among the Public Sector Banks, the best positioned is estimated to be SBI, which could see a 1.5% hit in its PBT, the report showed.
Moreover, the central bank also mandated banks to improve their disclosure norms pertaining to their exposure to credit, derivatives and un-hedged foreign currency exposures among themselves and put in place an effective mechanism for information sharing by end- December 2012.
