The Reserve Bank of India extended by a year the benefit which allowed banks to spread over two years the loss incurred through sale of bad loans to asset reconstruction companies.
In a notification on Thursday, the central bank said that this dispensation would be available until March 2016. As per an earlier circular, the forebearance had ended on March 31, 2015.
Banks are required to debit the loss made through sale of bad loans to ARCs at a sale value less than net book value from their profit and loss account in the same fiscal. In order to incentivise banks that recognised NPAs and sold them early amid a sharp rise in bad loans over the last three years, RBI had allowed banks to spread the loss through such sale over two years.
If the sale value is higher than the net book value, banks can reverse the provisions towards that NPA in the same year.
Recently, State Bank of India and its subsidiaries had sold R1,500 crore of loans given to Abhijeet Group firm Corporate Power to Asset Reconstruction Company India (ARCIL) for R340 crore or at a discount of 77%. Further, lenders to logistics firm Arshiya, including SBI and its subsidiaries had sold close to R1,120 crore of their exposure to Edelweiss Asset Reconstruction Company at a 50% discount.
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