RBI cracks whip to tame bad loans to the tune of 9.2%
Reserve Bank of India's new bad loan rules may improve prospects of loan recovery.
The rbi has cracked its whip against large corporate loan defaults and issued a late night notification on Monday which sought to give a major facelift and overhaul to the banking sector.
Corporate CEOs named
Names like Vijay Mallya and Subrata Roy, who have defaulted on loans, are not the only ones and World Bank figures reveal that bad loans now comprise 9.2 % of the total gross loans in India. Compare this to China which has managed to bring down its bad loans to 2% over the years.
In a series of calculated moves RBI withdraws CDR, SDR, S4A, JLF schemes to restructure defaulted loans. Henceforth only Insolvency Code (basically danda) will be the tool to resolve bad loan issue. That's what a reform means. Generations will benefithttps://t.co/vz3Eolv4g5
— Ashu😎 (@muglikar_) February 12, 2018
The government had last year given wide powers to RBI to address non-performing assets (NPAs) or bad loans.
The latest guidelines from the RBI will help to deal with bad loans and will make it compatible with the Insolvency and Bankruptcy Code (IBC). The latest guidelines will help to identify the bad loans and quick resolution of the assets in the banking system.
RBI guidelines
For lenders who have a liability of Rs 2,000 crore or above after March 1, 2018, a resolution plan should be effected within 180 days. Banks who do not adhere to the guidelines will be penalized.
The resolution plan could be any measures/strategy/ restructuring including regularization of the accounts by clearing over dues by the borrower, or a change in proprietorship or restructuring.
Stressed asset levels will not increase after new norms, says IBA's VG Kannan on RBI's revised rules for resolving bad loans.https://t.co/oohcjpzbKO pic.twitter.com/IAAj7uCjb3
— BloombergQuint (@BloombergQuint) February 14, 2018
The RBI also directed all lenders to submit on a monthly basis, a report to the Central Repository of Information on Large Credits (CRILC), details of all borrower entities in default (more than Rs 5 crore).