IBC: Fresh NPAs down, recoveries up after RBI norms

Bank provisions have risen and there is a noticeable change in credit culture with borrowers stepping forward with payments to make sure they do not default

Mumbai: Fresh non-performing assets (NPAs) have slowed down, credit culture has picked up and recovery rates have increased nearly a year since the Reserve Bank of India (RBI), with the Insolvency and Bankruptcy Code (IBC) as the main route, introduced the circular guiding banks to opt for a more stringent NPA recognition. When the RBI introduced the new norms last year — by keeping all the restructuring avenues aside available aside for banks — bankers were sceptical because of the increased provision burden to be borne after adhering to RBI's strict one-day default rule.

However, bank provisions have risen a year later, while there is a noticeable change in credit culture with borrowers stepping forward with payments to make sure they do not default.

SBI biggest benefitted from change in credit culture

"The resolution framework brings in required discipline. But there are also a few difficulties which need reconsideration," said State Bank of India (SBI) chairman Rajnish Kumar. The change in the credit culture has benefitted SBI to a great extent. In what is a clear difference from the fiscal that ended March 2018, India's largest bank has seen a rise in recovery and upgrades this fiscal.

Recoveries and upgrades in the quarter ended December amounted to Rs 25,800 crore, up 78 percent from Rs 14,530 crore in the last fiscal ending March, the bank's website says. SBI has also boosted its provisions this quarter, with its provision coverage ratio (PCR) improving to 74.63 percent from 65.92 percent a year ago.

New RBI move beneficial

 "It has forced recognition and resolution, two things that are key in tackling the bad loan from the bank's side. From the point of view of borrowers, it has improved credit culture which is a big gain," said a senior executive with a public sector bank.

With an aim to fasten resolutions, the Supreme Court (SC) last month upheld the IBC. However, the power producers association's petition requiring an exemption from the RBI's February 12 circular is not yet heard by the top court.