RBI panel seeks tighter norms for loan recast

[epicresearch]

Higher loan-loss provisions by banks and greater "sacrifice" by founders or controlling shareholders of troubled companies are among the tighter norms for loan restructuring recommended by a panel appointed by the Reserve Bank of India (RBI).

Banks should set aside 5% of total assets for standard loans that are restructured, up from 2% currently, while provisions for loans that are already restructured should be increased to 5% in a phased manner over two years, the report said.

The RBI had set up a working group last October to review the guidelines on debt restructuring of loans by banks and financial institutions and suggest changes taking into account the best international practices and accounting standards.

Under corporate debt restructuring, banks ease payment terms for corporate borrowers by extending payment tenure, lowering rate of interest or converting debt into equity without classifying the loan as bad.