NPAs Set to Rise Further with New RBI Rules - Chart Of The Day 15 February 2018 - Equitymaster
X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

NPAs Set to Rise Further with New RBI Rules
Feb 15, 2018


The Reserve Bank of India (RBI) has tightened the bad debt resolution framework by scrapping numerous loan restructuring programmes. This includes the likes of strategic debt restructuring scheme (SDR), Joint Lenders' Forum (JLF), Corporate Debt Restructuring Scheme, and Scheme for Sustainable Structuring of Stressed Assets (S4A) that's prevalent among banks to restructure defaulted loans. The RBI replaced all these schemes by the Insolvency & Bankruptcy Code (IBC).

With this, a loan worth over Rs 2.8 trillion, with payments outstanding for 60-90 days, carry the risk of slipping into the category of non-performing assets (NPA). This will result in a surge in NPAs and may put additional pressure on the banks to make provisions.

The new framework specifies that banks must report defaults on a weekly basis in the case of borrowers with more than Rs 50 million in bank debt. Further, for accounts with an exposure of Rs 20 billion or more, banks will have to put a resolution plan in place within 180 days after a default has been noted. If the resolution plan is not implemented within 180 days, the account must be referred to the IBC within 15 days.

The strict timelines could mean that a larger number of accounts will go into insolvency. Haircuts that banks may need to take and the probability of liquidation in some accounts may also rise. Similarly, under the new scenario, corporate lenders, which have already been under pressure due to rising bad loans and increased provisions, could take another hit.

The new framework is expected to help with early recognition and resolution of bad loans. While this may be positive for the banking sector in the long run, in the short run, banks may come under additional pressure.

Data Source: Business Standard

This Chart Of The Day was published in The 5 Minute WrapUp - What Do Fortis Healthcare and Vakrangee Have in Common?

Equitymaster requests your view! Post a comment on "NPAs Set to Rise Further with New RBI Rules". Click here!

1 Responses to "NPAs Set to Rise Further with New RBI Rules"

B C Chandola

Mar 8, 2018

NPA WILL FURTHER RISE. BANK WILL FINANCE WITH MORE PRUDENTLY. GROWTH SPEED & EMPLOYMENT GENERATION WILL SLOW DOWN. DUE TO LOWER SUPPLY OF CREDIT INTEREST RATES ON DEPOSIT WILL GO DOWN. SLOWDOWN IN ECONOMY WILL START.

Like 
  
Equitymaster requests your view! Post a comment on "NPAs Set to Rise Further with New RBI Rules". Click here!

Our Most Popular Charts

Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS