In a meeting with the Reserve Bank of India (RBI), following the monetary policy announcement on Tuesday bank chairmen expressed their apprehension about more loans turning bad in coming quarters as the impact of global slowdown starts setting in.
But some bankers feel that the impact of slowdown on loan quality will be visible only after a few quarters. Bankers feel that despite of the fact textiles, real estate, retail, exports and auto sectors will come under increasing strain, banks will not be left with much options in a couple of quarters to prevent an asset from moving into the sub-standard category.
Therefore bankers are asking RBI to relax the deadline for reworking loan repayment schedules to avert cash-strapped corporates from being graded as defaulters. Earlier the banking regulator had permitted banks to reorganize their bad loans up to June 30, 2009, provided banks ‘initiated restructuring’ of accounts before January 31, 2009. Banks also wanted a explanation on whether instigating restructuring meant the signing of a new agreement or receiving a proposal from the borrower.
They further added, “We have sought a clarification to avoid a dispute with auditors in future. Auditors should not claim that we restructured an account, against RBI norms.”
As loan assets held by banks have started failing, with some banks reporting a rise in bad loans in December 2008. The country’s largest bank, State Bank of India (SBI), have accounted gross NPAs of Rs 13,314 crore for the quarter ended December 2008 as compared to Rs 11,182 crore in the corresponding period last year.
In the same period, India’s second-largest commercial bank ICICI Bank observed its gross NPAs rise to Rs 8,988 crore from Rs 6,474 crore and Canara Bank’s gross NPAs increased to Rs 2,515 crore from Rs 1,524 crore.
However bankers remarked, bankers are closely scrutinizing their asset portfolios and have stepped up their recovery measures in expectation of increased bad loans.
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