The
Reserve Bank of India had issued a circular dated August 27, 2008 on 'prudential
guidelines on restructuring of advances by banks', which is a comprehensive set
of guidelines rationalizing and putting together the existing guidelines. Certain
modifications were made vide circular dated December 8, 2008 as the spillover
effects of the global downturn had started affecting the Indian economy particularly
from September 2008 creating stress for the otherwise viable units. Special regulatory
treatment was extended to Commercial Real Estate exposures restructured for the
first time as well as to exposures (other than commercial real estate, capital
markets and personal/ consumer loans) which were viable but were facing temporary
cash flow problems and needed a second restructuring.
The
Reserve Bank has received representation that :
(a) The
accounts which turned non-performing between September and December 2008 were
excluded from the special regulatory treatment extended in December 2008;
(b)
The period of 90 days allowed for restructuring may not be adequate in view of
the large number of accounts potentially requiring restructuring; and
(c)
Drawing power has been affected due to decline in inventory prices necessitating
conversion of irregular portions of working capital limits into working Capital
Term Loan (WCTL) on restructuring. However, as the borrowers may be unable to
provide further tangible security in the current context, accounts even after
restructuring will be classified as NPAs. The condition of WCTL being fully secured
by tangible security may, therefore, be relaxed.
The above
issues have been examined by RBI and it has been decided that:
(a) All accounts covered under the circular dated December 8, 2008 which were
standard accounts on September 1, 2008 would be treated as standard accounts on
restructuring provided the restructuring is taken up on or before January 31,
2009 and the restructuring package is put in place within a period of 120 days
from the date of taking up the restructuring package.
(b)
The period for implementing the restructuring package would stand extended from
90 days to 120 days in respect of accounts covered under the circular dated August
27, 2008 also.
(c) The special regulatory treatment will
also be available to 'standard' and 'sub-standard accounts', covered
under circulars dated August 27, 2008 and December 8, 2008 even where full security
cover for WCTL is not available, subject to the condition that provisions are
made against the unsecured portion of the WCTL, as under:
- Standard
Assets: 20%.
- Sub-standard Assets: 20% during the first year and
to be increased by 20% every year thereafter until the specified period (one year
after the first payment is due under the terms of restructuring).
- If
the account is not eligible for upgradation after the specified period, the unsecured
portion will attract provision of 100%.
These
provisions would be in addition to the usual provisions as per the current regulation.
Alpana
Killawala
Chief General Manager
Press Release : 2008-2009/1028