India’s Reserve Bank of India (RBI) relaxed guidelines for lenders restructuring large stressed loans, a move that could allow banks to more effectively manage bad loans.
As per RBI’s statement on Monday, lenders would be allowed to differentiate between stressed loan accounts into the following two categories.
- The sustainable debt portion that banks, or a lending syndicate, deem repayable and that the borrower would continue repaying on existing terms.
- The second is the remainder that a borrower is deemed unable to repay, which can now be converted into equity or convertible debt, giving lenders a chance to eventually recover funds if and when the borrower is able to turn around its business.
However, it should be noted that the above categories would only apply on loans of over INR 5bn ($74m) from a single bank or a syndicate, and only if a borrower’s project is already in commercial operation.
The move comes amid RBI’s deadline of March 2017 to banks to clear up their balance sheets of non-performing loans, which has swelled to about $120bn.