In order to effectively deal with high NPA problem, the Reserve Bank on Tuesday said it will come out with a modified guidelines by month-end to allow portion of sustainable bad loans to be treated as a standard asset. “One of the positives for the banking sector from the regulatory angle is the relaxation given on the treatment of sustainable debt under ‘Scheme for Sustainable Structuring of Stressed Assets’ (S4A). Though detailed guidelines are awaited, the move is a big positive for the banking sector,” Dena Bank CMD Ashwani Kumar said.
The Reserve Bank has put in place the ‘Scheme for Sustainable Structuring of Stressed Assets’ (S4A) in order to provide an avenue for reworking the financial structure of entities facing genuine difficulties and requiring coordinated deep financial restructuring.
The scheme provides flexibility in restructuring, which may involve material write-down of debt and/or making large provisions, under a credible framework, RBI said in the fourth bi-monthly monetary policy review for 2016-17.
Banks that have taken up cases for resolution under the S4A have represented that the asset classification norms under the S4A may be reviewed to make the scheme more effective. Accordingly, it is proposed to allow that portion of debt determined to be sustainable to be treated as a standard asset in all cases, subject to certain conditions, it said.
Detailed guidelines in this regard will be issued by end-October 2016, it added.
The S4A announcement permitting classification of sustainable portion as standard is quite pragmatic and realistic, Federal Bank MD Shyam Srinivasan said.
Besides, RBI proposes to set up a high level inter-agency committee by end-October 2016 to review the entire gamut of security of treasure in transit in order to beef up security of remittance of currency notes/coins.
RBI further said the prudential regulations for All India Financial Institutions (AIFIs) will be reviewed keeping in view the importance of ensuring the safety and soundness of financial institutions in general.
“…it has been decided to selectively extend elements of the Basel III capital framework to the four AIFIs, viz, EXIM Bank, NHB, NABARD and SIDBI with effect from April 1, 2018,” it said.
Guidelines or modifications to existing guidelines will be issued by end-October 2016.
AIFIs currently operate under the Basel I capital framework. Over the years, the operational landscape and risk profiles of AIFIs have changed significantly.
With the introduction of Basel III as a part of global financial regulatory reforms, many development finance institutions across the world have adopted Basel III either voluntarily or as required by their regulatory authorities.