After RBI identifies 12 a/cs for IBC, bankers await word on easier provision norms

After the Reserve Bank of India on Tuesday identified 12 non-performing assets NPAs, totalling 25 percent of India's gross NPAs, which can be taken up under the Insolvency and Bankruptcy Code (IBC), bankers now await word on easier provisioning norms.

The provisioning, which banks are required to set aside, is estimated to be in the range of Rs 20,000-50,000 crore depending on the specific accounts.

A senior public sector banker said, "Since the RBI has said it will come out with new revised norms, we hope that they come out soon as it would have a big impact on our books. In case the resolution plan takes place, the provisioning has to be undertaken in the same quarter. But, we need to be given more time of about 8-12 quarters to make them or can have lesser provision requirement for these select cases.”

The 12 accounts are worth nearly Rs 1.9 lakh crore, comprising a quarter of the total bad loans in the banking system.

These are accounts to which lenders have an exposure of more than Rs 5,000 crore. Over 60 percent of the accounts have been recognised as non-performing assets (NPAs) by banks.

On these 12 accounts, banking experts estimate an additional of at least 20-25 percent provision increasing costs for banks which could lead to a hit on the banks’ profitability.

Nirmal Gangwal, MD and Founder of Brescon Corporate Advisors, financial turnaround and debt resolution specialist, said, "It would help if banks aren't asked to set aside more provisioning for the stressed accounts, maybe other than the 12 accounts. Bankruptcy is being used for large cases and some provisioning is already done but will need more provisioning. So, if RBI can give more amortization or make a case for lesser provisioning, it would help in faster and better resolution.”

Provisioning is an expense where banks set aside a portion of their capital in order to make up for the unpaid loans of borrowers which are 'doubtful' or can potentially default.

A large portion of the stressed accounts identified by the RBI are from the steel and power sector.

"We estimate 40-60 percent provision would be needed on the steel accounts and even larger provisions for the others...While most banks have recognised 40-70 percent of their steel sector loans as NPAs, the specific provisioning for these NPAs is still low at about 30 percent," Ashish Gupta analyst at Credit Suisse said in a report.

At present, RBI norms mandate that banks have to make 25 percent of provisions for the doubtful accounts​ in the first year, 40 percent when the account is doubtful from 1-3 years and 100 percent for more than three years. For substandard accounts, the provisioning is 15 percent.

Assuming the accounts were NPAs at the end of March 2016, the broad provisioning might be in the region of 35-40 percent. Another 10-15 percent of exposure would have to be set aside by banks as provision.

In a meeting with RBI earlier, bankers had asked to spread the provisioning made over a few quarters of about 8-10 quarters in order to spread the losses.

RBI said it will separately issue a circular on revised provisioning norms for cases accepted for resolution under the IBC.