A working group has recommended tougher rules for banks offer debt restructuring in the country and have also suggested ways to prevent the misuse of debt recast facility by corporate.
It is believed that if the country central bank, the Reserve Bank of India (RBI) accepts the proposal, the banks will find it much more difficult to offer the facility and corporate sector will not be able to tap into the facility without valid proposal.
The working group on restructuring of loans has asked the central bank to scrap forbearance regarding asset classification, provisioning and capital adequacy on restructuring of loans and advances to align the country’s regulations with the international practices.
The new rules will require the banks to classify the assets as substandard and also make provisions on it when it is restructured. The panel, which was headed by RBI executive director B Mahapatra, clarified that the restructured debt could be again classified as standard after a period of two years depending on the macroeconomic situation.
The banks offer extension of repayment period, decreases the interest rate and also convert short-term working capital loans into longer tenure term loans when the companies are unable to pay back their borrowings under the corporate debt restructuring (CDR) regulations. They have urged corporate not to misuse the new regulations.