Even as the government and the Reserve Bank of India have gone all out to tackle banks' burgeoning non-performing asset (NPA) crisis, the central bank is keen to tackle a few teething problems that may have emerged from schemes pushed by them to lessen NPAs.
In particular, the Reserve Bank has focused on the UDAY scheme, which seeks to restructure debts of struggling power distribution company (discoms) and convert them into bonds backed by their respective states.
However, the UDAY scheme proposes to convert only 75 percent of discoms' debt. Sources say the RBI wants banks to treat the remaining 25 percent as NPA and provide provisioning for them.
Discoms across the country have debt of about Rs 2 lakh crore. Eleven states have expressed willingness to sign up for the UDAY scheme proposed by the central government.
The second change the RBI is mulling is with respect to strategic debt restructuring. This scheme was introduced a few months back, and allows banks to convert their debt into equity and take majority control over companies that have defaulted.
However, of late, banks have appeared to be keen to want to use this mechanism for another feature: after invoking SDR, banks can continue to classify the debt as standard for a period of 18 months from the date of takeover.
It is learnt that the Reserve Bank is not comfortable with this and seems to have impressed upon banks that this is not in banks favour too. If banks do not provide provisioning (that is, if they tread loans as standard assets instead of NPA), it will result in a higher profit and higher dividend.
However, after 18 months, if the bank fails to find a buyer for the taken-over company, they will have to again provide for the loans, and will have paid out more taxes and dividends in the past than required.
The RBI has thus suggested banks provide at least partly for SDR loans, so that they can write bank the provision if another promoter for an SDR company is found.
Source- Money control