Reserve Bank of India (RBI) on Tuesday said it would ease rules relating to asset classification for cases where a new management was coming into a company. The central bank said it would relax the date of commencement of commercial operations (DCCO) without asking banks to classify the asset as restructured for projects which that have been stalled due to inadequacies of the current promoters. “…the new promoters/developers may require additional time to revive/complete the stalled projects,” the RBI observed.
State Bank of India chairman Arundhati Bhattacharya told a business news channel that the more lenient classification was a significant enabler which will ease bankers’ jobs in trying to get new promoters for stressed assets. “Banks have been asking RBI for this dispensation because when a good promoter is coming forward to take over stressed asset, he does not want a NPA status account in his books and is resistant to that idea,” Bhattacharya observed. The SBI chairman added that if the was no longer going to be called an NPA it would give an incentive to the new promoter to come forward and take it over.
United Bank of India, MD, P Srinivas said the move will empower bank managements though there are certain limitations in exercising it. “In India, most companies are family-run companies, where not only the promoter but also the management consists of family members. In such cases if you just replace the promoter, it may not really help. It will make a difference if the company has professional management,” Srinivas said.
Under previously-declared norms, the RBI had allowed the DCCO to be pushed ahead by approximately two years when the project was stuck due to delay in regulatory approvals or lawsuits. The apex bank is now including ineffective management or promoters of companies in this list.
The central bank also said it is consulting with market regulator Sebi to amend the pricing norms for conversion of loans into equity for restructured assets. Banks were losing out since the Sebi pricing norms were unfavourable to lenders since they did not consider the intrinsic value of the stock – resulting in disproportionate loss to the lenders.
The RBI has allowed banks to reverse excess provision on sale of NPAs to ARCs if the amount received is higher than the book value of the asset. This is now available prospectively to banks. To give greater flexibility to banks in offering differentiated rates on deposits, the RBI has allowed banks to provide non-callable deposits. The central bank said that the current arrangement of callable deposits of upto R1 crore from Hindu Undivided Family results in a mismatch between assets and liabilities of banks.
POLICY FINE-PRINT
* Cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL)
* Statutory liquidity ratio (SLR) of scheduled commercial banks reduced by 50 basis points from 22% to 21.5% of their NDTL with effect from the fortnight beginning Feb 7
* Export credit refinance (ECR) facility replaced with the provision of system level liquidity with effect from February 7, 2015
* Limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) enhanced to $250,000 per person per year from $125,000
* To enable reinvestment of coupons in Government securities by foreign portfolio investors even when the existing limits are fully utilised
* All future investment by FPIs in the debt market will be required to be made with a minimum residual maturity of three years
* To permit stock exchanges to introduce cash settled Interest Rate Futures contracts on 5-7-Year and 13-15 year Government of India Securities
* Domestic entities and FPIs will henceforth be allowed to take foreign currency positions in the USD-INR pair up to $15 million per exchange without having to establish the existence of any underlying exposure
* New ownership or management of a company will merit an extension in date of commercial operation of an asset with no impact on asset classification
* Bankers applaud the changed rule saying it stands as a warning to company leadership to manage funds effectively
* RBI in talks with SEBI to tweak share valuation rules in scenarios where lenders convert debt to equity so that banks do not take up wider loss. RBI guidelines expected in 3 months
* RBI allows banks to prospectively reverse excess provision in books when NPAs sold to ARCs and cash received exceeds the book value of the asset
