MUMBAI: The Reserve Bank of India has said that from April 2015 banks will no longer have the leeway to relax repayment norms for troubled companies without classifying their loans as non-performing assets, which would lead to a surge in bad loans. RBI has also asked banks to increase provisions on loans restructured from June 2013 to 5% from the present requirement of 2.75%.
Also, promoters risk losing their shirt if they default on restructured loans as RBI has made it mandatory for banks to obtain a personal guarantee on all restructuring cases in future.
Until now, RBI restructuring norms allowed banks to avoid applying the 'bad loan' tag on distressed accounts which were given additional time to tide over difficult circumstances . Classifying a loan as a bad loan forces the bank to set aside a large portion out of its earnings to make up for loss arising out of a potential default. However , the central bank has made exceptions for project delays in infrastructure and commercial real estate. The new norms are based on the recommendations of a working group headed by B Mahapatra, executive director at RBI released earlier this year.