The rating agency, CRISIL in its latest report has said that the recent measures taken by the Reserve Bank of India (RBI) to deal with the issue of non-performing assets (NPAs) are likely to increase provisioning by another 25 percent in the fiscal year 2017-18 as compared to 9 percent in the last fiscal, as banks will take up to 60 percent haircut on the 50 top NPAs, based on their embedded value.
Describing these cases as a big and positive move for the banks’ balance sheets, rating agency has said that the banks have already provisioned 40 percent for these accounts worth Rs 2 trillion ,which is equal to a quarter of the total NPAs in the banking system before the RBI’s move. However, the report has said the move may provide some respite to the hapless lenders by way of amortisation. It also explained that the impact of this huge haircut can be mitigated if banks are allowed to amortise the provisioning across six to eight quarters.
Recently, the RBI referred 12 largest bad loans in the banking system for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), which provides for these companies to be referred for liquidation. The apex bank took the decision based on the recommendations of its internal advisory committee (IAC) that also mandated a time-bound resolution of these cases.