In a boost to banks, which are facing rising asset
quality issues, the Reserve Bank of India, allowed such lenders to reverse
the excess provision on sale of bad loans to their profit and loss account,
provided the transaction took place before February 26, 2014.
The central bank had on the February 3 monetary policy
day had said that it would issue the final guidelines on this front after
banks requested it to include the provision to those sales took place before
February 26, 2014, as well.
The move is aimed at incentivising banks to recover
appropriate value in respect of NPAs (non-performing assets).
Almost all banks, including private sector players, have
been reporting higher NPAs and lower profits as they have to make more
provisions for bad loans, which crossed 5.5 per cent as at the end of
December. Together with restructured loans, the total pain on the system is
close to 12 per cent.
The new guidelines extending the sale period prior to
February, 2014, will help banks report better numbers and, thus, take a
little pain off their back. From April 1, banks will have to make full
provision — 5 per cent of the bad asset — if they have restructured the
loan, and the entire amount if the asset in corporate debt restructuring
(CDR) turns bad.
The apex bank said the new guidelines will be applicable
if only the excess is for a value higher than the bank’s net book value (NBV).
Further, the notification said, “The quantum of excess
provision reversed to profit and loss account will be limited to the extent
to which cash received exceeds the NBV of the NPAs sold.”
It also made it mandatory for banks to report the quantum
of such excess provision reversed to the profit and loss account in the
financial statements of the bank under ‘notes to accounts.’ Bad loans in
public sector banks more than tripled to about Rs.2.17 lakh crore in three
years to March, 2014.
The move is aimed at incentivizing banks to recover
appropriate value in respect of NPAs.
The International Monetary Fund (IMF) has forecast India
will grow 7.5 per cent in 2015-16, up from 7.2 per cent in the current year,
a projection less optimistic than that of the Modi government.
In the Union budget 2015, the government estimated growth
of up to 8.5 per cent in 2015-16.
The Indian economy is the bright spot in the global
landscape, becoming one of the fastest-growing big emerging market economies
in the world, the IMF said in an official statement.
The report stressed the urgency of certain key reforms,
including the bottlenecks in the energy, mining and power sectors;
infrastructure gaps, land acquisition processes and environmental
In its annual assessment of the Indian economy in the
mandatory Article IV annual report, the IMF said that India’s
vulnerabilities have receded more than those of most emerging markets and
sentiment has been revived.
“The Indian economy is reviving, helped by positive
policy actions that have improved confidence and lower global oil prices…To
continue on this trend, India needs to revitalise the investment cycle and
accelerate structural reforms,” according to the statement.
“New investment project announcements have started to
pick up, particularly in the power and transport sectors,” said IMF Mission
Chief for India Paul Cashin. He also noted that bolstering financial sector
health and further financial inclusion would support growth going forward.
Mr. Cashin said that while India is well placed to cope
with external shocks, there are possible risks on the horizon, both external
These include spillovers from weak global growth and
potential global financial market volatility that could be disruptive,
including from any unexpected developments as the United States begins to
raise its interest rates.
On the domestic front, the weaknesses in corporate
balance sheets, especially in light of the increase in corporate leverage of
the past few years, and worsening bank asset quality bear watching, as they
could weigh on growth.
The IMF report also said that India’s economic profile
recently got a lift as the country improved the way it measures economic
“The revised national accounts series incorporates
numerous conceptual and methodological improvements that make them more
consistent with international best practices,” it said adding that the
report itself was prepared before the revisions were released by the Central
Mr. Cashin also gave thumbs up to the Modi government’s
recent move to introduce a flexible inflation-targeting framework. “It will
help deliver low and stable inflation, and diminish the prospect of renewed
bouts of high inflation,” he said.
Among the reforms the report recommended are steps in the
agriculture sector for efficient procurement, distribution, and storage of
food in the public system. Greater flexibility in labour markets and
improvements in education for meeting the rising shortages of skilled labour
were among the key reforms suggested.