Banks seek leeway from RBI

Bankers seem to be finding it difficult to implement the Reserve Bank of India's (RBI's) new guidelines on identification and early resolution of stress, though they admit the move is in the right direction and will bring discipline among corporate borrowers as lenders.

Lenders have sought more time from the banking regulator, as they feel the 30-day stress-resolution norms are a bit too stringent. According to them, at least 60 days will be required to firm up the resolution mechanism, known as the Corrective Action Plan (CAP).

RBI's discussion paper on early recognition and resolution of financial distress has recommended that banks come up with a CAP in 30 days under a joint lenders' forum (JLF).

Bank of India Chairperson & Managing Director V R Iyer welcomes the proposal of having a definite timeline for bankers to act. "But the suggested timeline (30 days) to firm up a package is too stiff," she tells Business Standard.

"Banks have to conduct audits, such as receivables audit, viability audit and forensic audit, before working out on package. These cannot be done within suggested timeframe. It needs at least two months to complete work," she adds.

The CAP involves rectification - that is, obtaining a specific commitment from the borrower to regularise the account within a specific time period, without involving any loss or sacrifice on the part of the existing lenders. It includes restructuring and recovery of stressed accounts.

At present, banks are not very prompt in working on proposals, especially when that involves a large number of lenders. Each bank takes its own time and, at times, it takes even six months to finish the work.

According to bankers, their views has been conveyed to RBI through the Indian Banks' Association (IBA). "This move will bring all bankers together at an early stage for the formation of a joint lenders' forum. We will also conduct workshops to take the idea forward. This will ensure smooth implementation of the initiative," said IBA Chief Executive Mohan Tanksale.

IBA has sought time till the end of the month - RBI had wanted a feedback on the proposals by January 1 - to convey its overall views. RBI is keen to implement the proposals by the end of the financial year.

Another issue bothering the banks is the proposal on accelerated provisioning. The central bank has proposed higher provisioning if banks fail to report their stressed-asset status early or resort to deferring NPA classification.

They are to face a higher provisioning requirement if they fail or decline or delay implementation of debt recast, as agreed in JLF.

"The present macro conditions - characterised by a long spell of low economic growth, sharp rise in pool of stressed assets and a higher burden of credit costs - are not conducive for accelerated provisioning," says a senior executive of a public-sector bank.

Bankers say there is a trend of minority banks (those with limited exposure to a particular borrower) often not wanting to participate or putting roadblocks in the proposed debt recast plan.

Banks have made a request to the regulator to defer the accelerated-provisioning requirement by six-nine months, or till the economic activity picks up.

Those involved in the turnaround exercise for companies, on the other hand, say this is the right time to introduce accelerated provisioning. Nikhil Shah, senior director at Alvarez & Marsal India Pvt Ltd, the Indian arm of a US-based firm specialising in turnaround management and corporate restructuring, says it is feasible in India. It should be introduced now to mandate banks to recognise problem early and deal with it.

When it comes to pushing for a change in management at companies that are NPAs or are under corporate debt restructuring packages, bankers are receptive.RBI is has been talking about it. It is difficult to bring management change.

But, it could act as a pressure point. In the process, we may get professional advisory firms to ensure promoters do not use delay tactics, says Bank of India's Iyer.