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Banks in no hurry to classify stressed accounts as NPLs

Once the guidelines kick in, banks will have to classify stressed assets as bad loans and hence, make higher provisions or a capital buffer which will directly eat into the profits and banks do not seem to be in a hurry to make use of this window of opportunity that is available to them.

Starting April 1, a category called “restructured assets” will not be available to banks. They have to classify stressed accounts as non performing loans (NPLs), and make higher provisions. But despite the March 31 deadline drawing near, banks are not rushing to restructure before the window closes.

There is no doubt that there is very high stress in the system when it comes to the bad loans. Infact most of the banks have reported about 6 percent rise in non-performing loans (NPLs) which is very worrying.

Last year the number of cases referred to the CDR cell was about 101 which was worth about Rs 1.3 lakh crore. However, this year so far, the number of cases that have been referred are only 25 which amounts to about Rs 23,000 crore. This figure is not even one fifth of the number of recasts that happened last year and although there is one more month to go for the March quarter to end, bankers are not expecting a rush in restructuring.

When the new guidelines kick-in, banks will not be allowed to call restructured loans. Once they do restructure loans they will have to classify them as bad loans and hence, make higher provisions or a capital buffer which will directly eat into the profits and banks do not seem to be in a hurry to make use of this window of opportunity that is available to them.

There are a couple of reasons why this is happening. Most importantly, the new Joint Lenders Forum (JLF) guidelines that have kicked-in have forced banks to take corrective actions within 60 days of the company not repaying its interest dues and they have come out with a plan and submit it and therefore take corrective actions.

Furthermore, there are a lot of infra companies especially that were under stress that have already gone into restructuring which is why saw a huge high in the number of loan recast last year and therefore there is a slowdown this year.

Thirdly, most bankers also seem to be expecting a turnaround in the second half of this calendar year which is why they are hoping some of these stuck projects may revive after a point. Lastly, almost half of the bad loans have come from the restructured category. So, the bankers are worrying that the restructured assets are already tipping into the NPL category and hence that said a large number of CDR cases were referred.

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