RGPPL loan recast to help banks cut NPAs

MUMBAI: Finally, Dabhol will cease to be a non-performing asset (NPA) in bank books. The lenders to Ratnagiri Gas and Power (RGPPL), formerly Dabhol Power, will be able to prune their bad loan ratio following the restructuring of the account. The Ratnagiri account, restructured in the quarter ended June, will now be, in banking parlance, a standard asset.

Banks have a combined exposure of Rs 7,000 crore in the power company. Unable to pay its dues, the company management had approached banks to restructure the loans. Among the lenders the NPA numbers for ICICI, State Bank of India and Canara Bank will come down immediately while IDBI Bank will show a lower NPA in September.

As an one-off measure, RBI had allowed banks to classify a restructured loan as ���standard��� asset as per certain conditions. Among other things, banks should have received the proposal before March 2009 and the account should be restructured by June 2009.

The central bank had also said that a bank could classify a restructured account as ���standard��� only if the loan is actually restructured and not merely on the basis of receiving an application for the same.

If the bank had not restructured the account before March 2009, then it had to downgrade the account as ���sub-standard.��� A bank could later upgrade it to ���standard��� asset only after restructuring it in the next quarter ending June 2009.

Most lenders had classified their RGPPL exposure as ���sub-standard asset��� in the quarter ending March 2009 and had made a provision of 10%. In the first quarter ending June 2009, the loan to RGPPL was restructured ��� which involved lowering of interest rates and extending the tenure of the loan.

While lenders would now be in a position to upgrade the account to ���standard,��� they cannot write-back the provisions made for the ���substandard��� loans. This is because RBI has laid down that banks should make upfront provision for future losses it may suffer due to the concessions to borrower.

IDBI Bank downgraded the account as ���sub-standard��� only in the June quarter. But it upgrade the account to ���standard��� in the quarter ending September 2009.

SBI may emerge as the biggest gainer from the loan restructuring exercise. S Ranjan, SBI���s chief financial officer told news agencies on Monday that the Dabhol account would now be re-classified as a ���standard��� asset and the provision coverage ratio (PCR) would go up to 43%. The bank���s PCR stood at 38% as on March 09.