The Reserve Bank of India (RBI) on Thursday directed banks to almost double provisions for new restructured loan accounts from June 1,2013. RBI wants the provisioning at 5 per cent against the current 2.75 per cent,a move that could impact the bottomline of banks.
For existing restructured standard accounts,provisions will be increased in stages 3.50 per cent (from March 31,2014),4.25 per cent (March 31,2015) and 5 per cent (from March 31,2016).
This means banks will have to earmark more funds from the profit and loss account for loan restructuring.
The tightening has come after 401 corporate accounts involving Rs 2,29,013 crore were restructured as on March 31,2013 and another Rs 32,000 crore worth proposals are pending before the debt restructuring cell of banks.
The RBI also increased the sacrifice and fund infusion to be made by promoters. The RBI has made it mandatory that promoters sacrifice and additional funds brought by them should be minimum of 20 per cent of banks sacrifice or 2 per cent of the restructured debt,whichever is higher. This stipulation is the minimum and banks may decide on a higher sacrifice by promoters depending on the riskiness of the project and promoters ability to bring in higher sacrifice amount.
Such higher sacrifice may invariably be insisted upon in larger accounts,especially CDR accounts. The promoters sacrifice should invariably be brought upfront while extending the restructuring benefits to borrowers, it said.
It has also decided that promoters personal guarantee should be obtained in all cases of restructuring and corporate guarantee cannot be accepted as a substitute for personal guarantee.
However,corporate guarantee can be accepted in those cases where the promoters of a company are not individuals but other corporate bodies or where the individual promoters cannot be clearly identified,the RBI said.
The RBI also said conversion of debt into preference shares should be done only as a last resort and such conversion of debt into equity/preference shares should,in any case,be restricted to a cap (say 10 per cent of the restructured debt).