Partial fix for NPAs PDF Print E-mail
Wednesday, 31 October 2012 23:43
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Given the manner in which India Inc’s forex loans are unhedged, or the speed at which banks are restructuring loans, RBI has done well to act on these, though the pace of action leaves a lot to be desired. While the earlier number doing the rounds was around 35%, RBI deputy governor HR Khan recently said that around 65% of forex loans and bonds of India Inc were unhedged. And the three months to September have seen a record R31,500 crore of loans being recast by the CDR cell, an amount that equals around 80% of that restructured in all of FY12. Indeed, at the time RBI deputy governor KC Chakrabarty blew the lid on restructuring—he pointed out loans of large companies tended to get restructured more than those of smaller firms—restructured loans were growing faster (42.5% in FY2009-12) than gross advances (19.1% in FY2009-12). While just 2.3% of advances to small and micro industrial units were restructured in FY12, Chakrabarty pointed out, the figure was as high at 9.3% in the case of medium and large industrial firms.

Given this, RBI has done the right thing by telling banks to put in place a mechanism to evaluate the risks from unhedged positions and to report this regularly to RBI, apart from pricing this in while extending credit to them. In the case of restructured loans, RBI has advanced some of the recommendations of the Mahapatra committee that was to review this. While the draft guidelines will be issued by the end of January 2013, RBI has said that provisioning on restructured standard accounts is to be hiked from 2% right now to 2.75%. While that’s a good step, it may not be enough—indeed, the RBI working group had suggested a figure of 5%. More important, if regulatory forbearance is being abused—based on Chakrabarty’s data—RBI needs to come out with some norms, including personal guarantees of promoters. Hopefully, we’ll see this in the January guidelines.


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