Banks reach out to regulator again for provisioning relief in March quarter

March 31, 2020 3:20 AM

According to the June 7, 2019 circular of RBI, banks will have to make additional 20% provisioning for the cases where resolution could not be reached over a period of 210 days, after signing the inter-creditor agreement.

The banks were hoping that announcements regarding the cases of the June 7 circular to be made along with other measures declared by RBI on March 27 to fight Covid-19. The banks were hoping that announcements regarding the cases of the June 7 circular to be made along with other measures declared by RBI on March 27 to fight Covid-19.

By Ankur Mishra

Banks have yet again approached the Reserve Bank of India (RBI) through the Indian Banks’ Association (IBA) for an additional 20% provisioning relief for the unresolved cases as per the June 7 circular of the regulator. Earlier, on March 20, IBA had made a representation to RBI on this issue. According to sources, the banks are facing provisioning pressure of at least Rs 25,000-30,000 crore in the March quarter, as most of the cases where inter-creditor agreements were signed remain unresolved. SBI alone may have to provision around Rs 13,000 crore for unresolved cases, as per sources. According to the June 7, 2019 circular of RBI, banks will have to make additional 20% provisioning for the cases where resolution could not be reached over a period of 210 days, after signing the inter-creditor agreement.

The banks were hoping that announcements regarding the cases of the June 7 circular to be made along with other measures declared by RBI on March 27 to fight Covid-19. Therefore, banks have once again reached out to the regulator, considering the impact of lock-down on resolutions. “We have represented again to the RBI to provide relaxation in provisioning for unresolved cases as per the June 7 circular,” the source said. “There is still time for banks for declaring quarterly earnings till May 15, therefore, the notification from RBI can come at a later date as well,” the source added. The Securities and Exchange Board of India (Sebi) has given companies 45 days more to file financial results for the quarter ending March 2020 to provide relief to companies amid the spread of Covid-19.

One banker with a public sector bank, who did not wish to be named, said, “We were disappointed with RBI to overlook our demand of relaxation in additional provisioning of the cases under June 7 circular.” This is the time to take extraordinary measures to support banks, he further said.

Due to the impact of Covid-19, many cases are stuck because of procedural issues. Therefore, banks want more time to resolve these cases. The provisioning pressure for banks will also come from the cases where resolution process has started. In big-ticket-size cases like DHFL, the date to submit bids is likely to get extended beyond April 16. DHFL is undergoing resolution at NCLT since December 2. The banks had made provisioning of around 15% of total exposure in the December quarter.

Financial creditors have around Rs 41,000-crore exposure to DHFL. Experts believe that banks will have to continue making 15% more provision in the March quarter for the mortgage lender as per the master circular of RBI on prudential norms on income recognition, asset classification and provisioning pertaining to advances.

However, it was a big relief to banks in terms of immediate liquidity due to announcement of reduction in cash reserve ratio by 1% to 3%. IBA had earlier urged the regulator to reduce the cash reserve ratio (CRR) by 1% from the current rate of 4%. CRR is the amount of funds that banks have to maintain with RBI at all times. State Bank of India chairman Rajnish Kumar said: “Rs 31,000 crore will be released for SBI due to CRR cut of 1% by RBI.”

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