RBI liberalises NPA norms

Written by Banking Bureau | Mumbai | Updated: Jan 4 2009, 04:28am hrs
Further liberalising the prudential norms for the treatment of non-performing assets in the context of ongoing slowdown in the Indian economy, the Reserve Bank of India on Friday said all accounts which were standard accounts on September 1, 2008 would be treated as standard accounts on restructuring provided the restructuring is taken up on or before January 31, 2009 and the restructuring package is put in place within a period of 120 days from the date of taking up the restructuring package.

The period for implementing the restructuring package has also been extended from 90 days to 120 days in respect of those accounts. The special regulatory treatment will also be available to standard and sub-standard accounts. These provisions would be in addition to the usual provisions as per the current regulation.

Certain modifications are necessary as the spillover effects of the global downturn had started affecting the Indian economy particularly from September 2008 creating stress for the otherwise viable units, said RBI.

Earlier special regulatory treatment was extended to commercial real estate exposures restructured for the first time as well as to exposures (other than commercial real estate, capital markets and personal/ consumer loans) which were viable but were facing temporary cash flow problems and needed a second restructuring.

The RBI which had announced liberalisation of NPA norms earlier had received representation that the accounts which turned non-performing between September and December 2008 were excluded from the special regulatory treatment extended in December 2008.

The period of 90 days allowed for restructuring may not be adequate in view of the large number of accounts potentially requiring restructuring.

Also drawing power has been affected due to decline in inventory prices necessitating conversion of irregular portions of working capital limits into working Capital Term Loan (WCTL) on restructuring.

However, as the borrowers may be unable to provide further tangible security in the current context, accounts even after restructuring will be classified as NPAs. The condition of WCTL being fully secured by tangible security may, therefore, be relaxed, said RBI.

Meanwhile RBI has asked all non- banking finance companies (NBFCs) that the rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice. ``Boards of NBFCs were, therefore, advised to lay out appropriate internal principles and procedures in determining interest rates and processing and other charges, said RBI in a notification on Friday.