Police officers stand guard in front of automated teller machines (ATM) in Mumbai, India. (Photographer: Adeel Halim/Bloomberg)

RBI Gives Provisioning Breather To Banks On NCLT Accounts

The Reserve Bank of India gave another breather to lenders, as it temporarily relaxed provisioning norms to help them better manage their March quarter earning numbers.

The RBI sent a communication late last night to managing directors of banks allowing them to provide only up to 40 percent of secured loans against accounts admitted under the National Company Law Tribunal, according to two senior bankers who requested anonymity. The news was first reported by the Economic Times newspaper.

This has been brought down from an earlier requirement of 50 percent provisioning against secured loans in NCLT cases. But this breather on provisioning will only last till March 31. Banks have been asked to raise the minimum provisioning back to 50 percent by June 30, the end of the first quarter of this financial year.

In June last year, the banking regulator had asked lenders to provide for 50 percent of all secured loans against NCLT accounts, and 100 percent of unsecured exposures. The provisioning requirement on unsecured loans would remain at 100 percent. This had been announced after banks had been asked to immediately admit 12 large corporate accounts to the NCLT under the Insolvency and Bankruptcy Code. In August 2017, the central bank sent a second list of 29 corporate accounts to be sent for insolvency proceedings.

This is the second benefit on provisioning that banks received from the RBI. On Monday, the central bank allowed commercial banks to spread their provisioning on mark-to-market losses on their treasury portfolio, over four quarters.

Lenders will assess the benefit on provisioning they may receive thanks to the Wednesday letter, and consider writing back the excess provisions they may have on the NCLT accounts, according to one of the two senior bankers quoted above. At present, most large banks have an aggregate 55 percent provisioning on NCLT accounts.

Anshula Kant, chief financial officer, State Bank of India, said the breather was a small window, since it was applicable only for one quarter. “We will be very careful while we use this provision and we will do it in consultation with our corporate teams and with our auditors and it will be based on expected recovery where we are fairly confident,” she said. “We are still to take a call on this, it will be very judiciously taken.”

According to SBI analyst report for the quarter ended December, the accounts in two NCLT lists contributed over Rs 78,000 crore worth of loans. The bank’s aggregate provisioning ratio against these accounts was at 60 percent.