Monday, August 30, 2010

The Hindu Business Line : Relax terms for promoter funds in debt recast, say banks

The Hindu Business Line : Relax terms for promoter funds in debt recast, say banks

Non-Performing Assets have always been a pain point for Banks in India. When the overall governance of banks was in a pretty unorganised with focus on branch expansion and liberal credit disbursement in the name of loan melas and other poverty alleviation schemes, banks had no control whatsoever on the defaulters. Those days, it was an accounting mechanism to declare bad and chronic accounts and provisions were made by each bank as per their own policies.

Economic Reforms and Banking Sector Reforms during the early nineties transformed the working of all types of banks. Definition of NPAs were spelt out for the first time in 1993 along with Prudential Norms and IRAC guidelines. In the beginning it was four quarters or 360 days dues that were considered to be declared as NPAs. Year after year focus was on streamlining this aspect thus bringing down to 90 days dues being treated as NPA in 2004, which is the international standards. Also, the provisioning norms were also spelt out by the RBI even for Standard Assets. Besides, DRTs were created and later followed by write off / compromise settlements were encouraged as One Time Settlements. BIFR was set up to speed up relief to the banks in handling bad loans.

Next stage was that of enacting SARFAESI law in 2002 alongwith creation of Asset Reconstrution Companies and Securitisation Companies to handle the NPAs differently. CDR was a via media to help those deserving and needy defaulters with additional funds. The recent development is a good gesture by the banking system in India to help such genuine defaulters with support in a phased manner which is laudable.

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