RBI may allow one-off restructuring of stressed loans

The Reserve Bank of India (RBI) is exploring the option of allowing banks a one-off restructuring of loans. This is one of the suggestions made by the banking industry to help sectors affected by coronavirus and also deal with the stress building up on account of suspension of insolvency proceedings for a year.

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Key-Points

A one-time recast of loans was a suggestion of the banking industry to help firms affected by the covid pandemic.

Banks are asking for a similar restructuring forbearance for other large accounts by exempting them from declaring these accounts as NPA.

RBI has been opposed to debt restructuring, given that banks in the past used it to classify restructured loans as standard accounts and set aside lower provisions against them. This incentivized restructuring rather than recognizing bad loans.

The banks are asked to provide a minimum of 15% of the loan value of the restructured account to cover the risk of default, versus only 5% earlier.

RBI asked banks to make 10% provisions for all loans under the three-month moratorium announced on 27 March and said banks will get 90 more days to resolve assets under the 7 June 2019 circular.