Moody’s Investors Service Monday said that the Reserve Bank’s new prudential framework for stressed asset resolution is ‘credit positive’, but flagged the slower-than-expected progress of resolution under Insolvency and Bankruptcy Code as a key hurdle.
“The RBI’s revised framework for the resolution of stressed assets is credit positive, because it brings back the focus on the need for the timely resolution of such assets, and the buildup of loan loss provisioning against those assets,” Moody’s Investors Service VP Financial Institutions Group Alka Anbarasu said.
The Reserve Bank of India (RBI) last week issued a prudential framework for resolution of stressed assets, which give lenders 30 days to review a borrower account before labelling it as a non-performing asset (NPA) in case of default.
This framework replaces the earlier circular which mandated lenders to start resolution even if there was one day default. This circular was quashed by the Supreme Court in April.
Moody’s said extension of the circular to non-bank finance companies (NBFCs) will help align the loan loss provisioning norms for the large stressed accounts of NBFCs with commercial banks.
“Nevertheless, the slower-than-expected progress under the Insolvency and Bankruptcy Code (IBC) remains the key hurdle to the timely resolution of stressed assets. The cleanup of the bank’s balance sheets could therefore still take another two to three years,” Moody’s added.