RBI to come out with modified norms by October-end to effectively deal with NPAs

Mumbai: In order to effectively deal with high NPA problem, the Reserve Bank today said it will come out with a modified guidelines by month-end to allow portion of sustainable bad loans to be treated as a standard asset.

"One of the positives for the banking sector from the regulatory angle is the relaxation given on the treatment of sustainable debt under 'Scheme for Sustainable Structuring of Stressed Assets' (S4A). Though detailed guidelines are awaited, the move is a big positive for the banking sector," Dena Bank CMD Ashwani Kumar said.

The Reserve Bank has put in place the 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) in order to provide an avenue for reworking the financial structure of entities facing genuine difficulties and requiring coordinated deep financial restructuring.

The scheme provides flexibility in restructuring, which may involve material write-down of debt and/or making large provisions, under a credible framework, RBI said in the fourth bi-monthly monetary policy review for 2016-17.

Banks that have taken up cases for resolution under the S4A have represented that the asset classification norms under the S4A may be reviewed to make the scheme more effective.

Accordingly, it is proposed to allow that portion of debt determined to be sustainable to be treated as a standard asset in all cases, subject to certain conditions, it said.

Detailed guidelines in this regard will be issued by end-October 2016, it added.

The S4A announcement permitting classification of sustainable portion as standard is quite pragmatic and realistic, Federal Bank MD Shyam Srinivasan said.

Besides, RBI proposes to set up a high level inter-agency committee by end-October 2016 to review the entire gamut of security of treasure in transit in order to beef up security of remittance of currency notes/coins.

RBI further said the prudential regulations for All India Financial Institutions (AIFIs) will be reviewed keeping in view the importance of ensuring the safety and soundness of financial institutions in general.

"...It has been decided to selectively extend elements of the Basel III capital framework to the four AIFIs, viz, EXIM Bank, NHB, NABARD and SIDBI with effect from April 1, 2018," it said.

Guidelines or modifications to existing guidelines will be issued by end-October 2016.

AIFIs currently operate under the Basel I capital framework. Over the years, the operational landscape and risk profiles of AIFIs have changed significantly.

With the introduction of Basel III as a part of global financial regulatory reforms, many development finance institutions across the world have adopted Basel III either voluntarily or as required by their regulatory authorities.

On Large Exposure Framework, RBI said the final guidelines will be issued by end-October 2016 for full implementation by March 31, 2019.

In order to align the exposure norms for Indian banks with the Basel Committee on Banking Supervision (BCBS) standards, RBI had issued a Draft Large Exposures (LE) Framework was issued on August 25, 2016 for public comments.

It also said final guidelines on Computing Capital for Counterparty Credit Risk and Exposures to Central Counterparties will be issued by month-end.

Also, based on the revised framework of the BCBS on interest rate risk in the banking book, draft guidelines to banks will be issued by end-November 2016.

Regarding financial markets, RBI said custodian banks of FPIs will be responsible for monitoring all derivative transactions of an FPI.

"Accordingly, each FPI will report all derivative transactions conducted with any market-maker (other than its custodian bank) to its custodian bank on the date of transaction itself," it said.

RBI also said that it has been decided to allow the overseas parent or its central treasury to hedge the currency risk arising out of genuine current account exposures of the Indian subsidiary in order to better manage the latter's currency risk.

Further, Import Data Processing and Monitoring System (IDPMS) will provide end-to-end monitoring of import transactions from shipment to final payment, thereby doing away with the existing gap in current monitoring on a stand-alone basis by the custom authorities, authorised dealer banks and the Reserve Bank.

The IDPMS will go live with effect from October 10, 2016.

RBI has also decided to set up an Acceptance Development Fund (ADF) in order to encourage wider adoption of electronic payments and to ensure planned expansion of card acceptance infrastructure in the country.

The ADF, which would be established and operated under the aegis of Indian Banks' Association (IBA), will set the rules for contribution and utilisation of funds.

In addition, it will plan deployment of acceptance devices across various geographic and merchant segments in the country. Guidelines for the ADF framework will be issued by December 31, 2016.