Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday said the regulator will come out with a discussion paper next week on early recognition and resolution of stressed assets. The focus will be on ?putting real assets back to work in their best use?, Rajan said at an event.
The paper will discuss the probability of setting up an agenda committee to fast-track the process of resolution of distressed assets in consultation with the borrower. For bankers who resolve issues quickly and apply the solutions, the paper proposes to have ?strong incentives?. However, the paper will also talk about accelerated provisioning if no agreement is reached among bankers, Rajan said.
The governor had first flagged off the need for early recognition and resolution of stressed assets in November, leaving bankers uncertain about the possible regulatory changes on the way NPAs are classified and provisioned for.
A number of bankers that FE spoke with confirmed that most private and public banks already have an informal ?early warning system? in place that helps them identify loan accounts that are showing signs of stress. The only suggestion that bankers made was to standardise this process.
?Each bank can?t be following its own recognition schedule, so there needs to be a uniform system of early recognition, if the regulator wants it. Also, it needs to be made clear what kind of incentives we are planning,? said KR Kamath, CMD, Punjab National Bank, echoing the sentiment of most bankers.
A common practice among banks is to classify weak accounts into two categories ? loans where payments are delayed for less than 30 days and where the delay is more than 30 days and under 90 days.
Accounts that do not make repayments within 90 days are classified as NPAs as per regulatory guidelines. Banks are required to make full provision against assets classified as NPAs. Some bankers say the RBI could consider a sub-category of stressed assets, where payments are delayed for more than 30 days and ascribe a lower provisioning against these assets while laying down a specified period over which these accounts must return to a normalised payment schedule.
Other bankers, however, argue that this would only push up the ratio of stressed assets in the banking system. They add that in a number of cases, payments come in within 45-60 days and, thus, these accounts escape the NPA tag.
The gross NPA ratio of 37 banks, including 23 public and 14 private sector, stood at 4.2% as on September 30, data collected by FE showed.
Experts say the best way to incentivise early detection and recovery may actually be to do it through the ground level staff who monitor these accounts on a daily basis.
?The bankers at the branch level know very well about which accounts are facing repayment issues and can monitor the financial health of the borrower well,? said Ashvin Parekh, senior advisor, Ernst & Young, and managing partner at Ashvin Parekh Advisory Services.