SBI hails RBI's 'Prudential Framework' to handle bad loans

The State Bank of India (SBI) has welcomed the Reserve Bank of India's decision to incept 'Prudential Framework' to tackle rising bad loans among the Indian banks. The leading retail bank of India told that the new prudential framework provides some leeway to lenders and encourages them to refer cases to Insolvency and Bankruptcy Court (IBC). The new framework would allow some breathing space to lenders in provisioning and succumbing to distress resolution.

Speaking on the development at RBI end Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI said, "The new prudential framework provides some leeway to lenders and encourages them to refer cases to Insolvency and Bankruptcy Court (IBC). This would entail writing back of additional provisions. Under the current and revised dispensation, additional provisioning of 20% would have to be made in case resolution plan is not implemented within 180 days from the end of the review period, which is after 210 days of default. This would allow some breathing space to lenders in provisioning and succumbing to distress resolution. In case the default period exceeds 365 days, additional provisioning of 15% (i.e. total additional provisioning of 35%) would have to be made." 

Dr. Ghosh of the SBI went on to add that a better time frame and transition offered in the revised framework on this would allow the lenders the headroom and flexibility for resolution in large ticket cases. Also, noteworthy is the consensus among lenders in terms of value and also in terms of number. Earlier, there was 100% consensus required, but with the new framework, in place, 75% lenders by value and 60% by numbers would be required for resolution. Further, lenders are to enter into an inter-credit agreement. The provision relating to resolution implementation within 180 days from March 1, 2018 (reference day/default day), no longer exists for large accounts with aggregate exposure of more than Rs.2000 Cr. Instead, slab-wise reference dates have been set as per table provided herein. For exposures of less than Rs.15 bn, the reference date is yet to be announced. All the above measures are likely to facilitate better realisation and write back of provisions. Going forward, asset quality is also seen as improving. Overall we believe, various efforts made by RBI in strengthening its regulatory and supervisory framework and the resolution mechanism initiated through IBC are bearing fruit, as also can be seen from the GNPA trend since Sept’18.