Govt mulling move that may spell relief for debtladen banks

CENTRAL AID RBI is looking at a proposal to reclassify debt under restructuring as standard debt rather than as NPA

MUMBAI: Banksstrugglingundera mountainofloansgonebad,could soongetabreatheras RBIislookingataproposaltoclassifyapartof the sticky debt as standard loan rather than as non-performing asset.

The central bank is exploring options of tweaking norms in the S4AortheSchemeforSustainable Structuring of Stressed Assets, a debt restructuring plan formulated by RBI in June, sources in the know said.

The purpose is to allow more room to manage chronic bad debt which are impacting banks’ profitability, apart from tightening credit to flow into the system.

Gross NPAs of public sector banks have risen to ₹5.59 lakh croreinJunefrom₹5.02lakhcrore in March this year.

Banksareawaitingmoredetails on the changes. Under S4A, banks could convert up to 50% of a company’sunsustainablepartofloans into equity or equity-like instrumentswithouttheneedtofindbuyersimmediately.Onitsbooks,however, the loan continued as a nonperforming asset (NPA). With the new norm, the sustainable debt portion will become a standard debt and not a NPA.

“This means there will be less need for provisions and banks will be able to further work on resolving the sustainable debt portion which is a huge pool on their books,” a senior bank official said. “At least 50% of the debt will now not be an NPA, which can be serviced by companies in a relatively easier way as it can be in a better position to get more support in the form of moratorium or relief on interest rates.

“Otherwise everything came to a standstill for companies, which had to work around the debt repayment. A lot of projects also didnotachievetheCOD(commercial operation date) and hence were not eligible,” he said.

The move is in line with RBI governor Urjit Patel’s recent statement that debt restructuring proposals needs to be more “pragmatic.” Since banks and companies have been unable to resolve the bad loan mess due to the reluctance of banks to take a ‘haircut’, the proposed change could serve as an incentive for them to resolve the situation.

Nirmal Gangwal, managing director of Brescon Corporate Advisors, a turnaround and advisoryfirm,said:“This(theproposed changes)willgivereliefintermsof classification for banks but not to corporates. Bankers may still be under pressure due to the balance unsustainableportionwhichcould behuge.RBIhastothinkofanoverallsolutionforanoverallproblem andcomeoutwithguidelinesafter each problem.”

The S4A has been a non-starter since its launch in June, as it could be applied to only operational projects and not to projects under construction. While it called for splitting of bad loans under two heads: sustainable and unsustainable, but the original tenure of repayment of the debt could not be rescheduled nor repriced.

Bankers said the scheme put burden on them due to high provisions on the loans, while continuing to be treated as a non-performing asset (NPA) on the books. Another banker said the scheme was taking time, as accounts would have to undergo the “techno-economic” viability study, forensic audit and also get approval from an independent oversight panel. WASHINGTON: India, the world’s largest remittance recipient in 2015, may see a drop of 5% this year, the World Bank said citing weak economic growth in remittances-source countries and cyclic low oil prices.

The country is expected to receive remittances of $65.5 billion (₹4.4 lakh crore) this year— it received $69 billion in 2015.

Despite the drop, however, India is likely to top the list of countries that receive foreign remittances, marginally ahead of China at $65.2 billion (₹4.36 lakh crore). Pakistan, which is at number five, is estimated to receive $20.3 billion (₹1.36 lakh crore) in 2016.

“In 2016, remittance flows are expected to decline by 5% in India and 3.5% in Bangladesh, whereas they are expected to grow by 5.1% in Pakistan and 1.6% in Sri Lanka,” the World Bank said in a latest report on remittances.

The World Bank said remittances to South Asia is expected to decline by 2.3% in 2016, following a 1.6% decline in 2015.

Remittances from the gulf cooperation council (GCC) countries continued to decline due to lower oil prices and labour market ‘nationalisation’ policies in Saudi Arabia. GCC is an alliance of six Middle Eastern countries — Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman.

It said against a backdrop of tepid global growth, remittance flows to low and middle income countries seem to have entered a “new normal” of slow growth.

In 2016, remittance flows to LMICs are projected to reach $442 billion, marking an increase of 0.8% over 2015. The modest recovery in 2016 is largely driven by the increase in remittance flows to Latin America and the Caribbean on the back of a stronger economy in the US; by contrast remittance flows to all other developing regions either declined or recorded a deceleration in growth, the bank said.