Relaxed provisioning to help rejig small loans

NEW DELHI: The finance ministry is in consultation with the Reserve Bank of India (RBI) to relax the provisioning norms for restructured loans. The move would both help smaller companies to get their loans restructured and for banks to maintain profitability.

At present, banks have to make a provisioning of 5% for their restructured loans against only 0.4% for standard assets. The norm is applicable for loans up to Rs 1 crore. For loans above Rs 1 crore, provisioning has to be done on a case-to-case basis. Indian Banks��� Association (IBA) had requested RBI to bring the ratio to 2%.

The matter is also likely to come up for consideration during Cabinet secretary���s meeting with public sector bank chiefs on Thursday.

���We have received representation from IBA in this regard and we have forwarded it to RBI. The IBA is also pursuing the matter separately with the banking regulator. It is likely that RBI would come out with something in the next few days,��� said an official in the finance ministry requesting anonymity.

Commercial banks are flush with applications to restructure bad loans. A borrower with a bad loan ��� called a non-performing asset in the jargon ��� is not eligible for a fresh loan. However, once a bad loan is restructured, the borrower qualifies for a fresh loan.

���On the one hand, the government is asking us to restructure the loans of industry ��� particularly for the small and medium enterprises (SME) and exporters ��� on the other, the banking regulator prescribes substantially higher provisioning from our profit and loss account. Doing such a high provisioning will have adverse impact on banks��� profit,��� said a senior official in one of the large Delhi-headquartered public sector banks, requesting anonymity.