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RBI to introduce tough corporate loan recast norms

Almost every public sector bank has seen an upsurge in bad debt and rising cases of corporate debt restructuring in past and current fiscal. Indian Inc. witnessed highest cases of debt restructuring in past 11 years.  The current crisis has brought to light some weak links in the restructuring norms which are likely to be addressed by Reserve Bank of India (RBI), making corporate debt recast not easily accessible.
 
One of the norms that RBI is considering is that the banks should not provide additional facilities to companies with clear case of board-level mismanagement.
 
RBI has set up an internal committee under its executive director B Mahapatra to look into the restructuring guidelines for bank loans. The committee is expected to submit its report next week, following which, RBI may post a discussion paper on its website.
 
Banks may no longer have to classify loans as non-performing assets (NPAs) if they have been restructured twice. Bankers in the know say, a second restructuring would be allowed only if the account has been performing as standard asset for at least a year after the first restructuring.

However, the guidelines may not be changed in the case of the real estate sector where advances are not allowed to be restructured. Once restructured, such loans will immediately fall under the NPA category.
The banks are expecting to receive the revised guidelines shortly.  
  

 

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