Mumbai: The RBI, in a boost to banks which are facing rising asset quality issues, allowed such lenders to reverse the excess provision on sale of bad loans to their profit and loss account provided the transaction took place before February 26, 2014.
The RBI had on the February 3 monetary policy day had said that it would issue the final guidelines on this front after banks requested it to include the provision to those sales took place before February 26, 2014 as well. The move is aimed at incentivizing banks to recover appropriate value in respect of NPAs (Non-Performing Assets).
Together with restructured loans, the total pain on the system is close to 12 percent. Almost all the banks, including private sector players, have been reporting higher NPAs and lower profits as they have to make more provisions for bad loans, which crossed 5.5 percent as of end December.
The new guidelines extending the sale period prior to February 2014 will help banks report better numbers and thus take a little pain off their back. From April 1, banks will have to make full provision — 5 percent of the bad asset — if they have restructured the loan, and the entire amount if the asset in Corporate Debt Restructuring (CDR) turns bad.
