S&P hails RBI plan on NPAs

Global rating agency Standard & Poor on Wednesday said Reserve Bank of India's draft guidelines on the sale and purchase of non-performing assets is a move in the right direction toward better enforcement of the quality of assets in the banking sector.

"Although the draft guidelines have yet to be finalised, they aim to ensure improved quality and disclosure of banks' reported assets," S&P said.

The proposed guidelines also highlight the continued vigilance of RBI in its supervisory activities, it said.

This will be predominantly achieved through allowing the sale or transfers of NPAs to be conducted on a clean basis, without any form of recourse to the selling bank, and that purchasing banks need to adhere to a minimum holding period of 15 months for any NPA purchase.

This essentially discourages banks from conducting cosmetic transactions to artificially improve their balance sheets and profitability, S&P said.

Furthermore, RBI intends for banks to disclose such sale and purchase transactions in the notes to their financial statements, thus increasing overall financial transparency, it added.