By Ankur Mishra
Banks have again approached the Reserve Bank of India (RBI) through the Indian Banks Association (IBA) for an additional 20% provision for unresolved cases under the regulator’s June 7 circular. Earlier, on March 20, IBA had made a presentation about this to RBI. According to sources, banks will face a supply pressure of at least Rs 25,000-30,000 crore in the March quarter, as most cases where agreements between creditors were signed remain unresolved. Only SBI may need to provide around Rs 13,000 crore for unresolved cases, according to sources. According to the RBI circular of June 7, 2019, banks will have to make an additional 20% provision in cases where settlement could not be reached over a 210-day period, after the agreement was signed between creditors.
The banks hoped that announcements about the June 7 circular would be made, along with other measures that RBI announced on March 27 to combat Covid-19. That is why banks have contacted the regulator again, given the impact of lock-down on resolutions. “We have again represented with the RBI to provide for easing the unresolved provision under the June 7 circular,” the source said. “There is still time for banks to report quarterly earnings until May 15, which is why the RBI’s report may come later,” the source said. The Securities and Exchange Board of India (Sebi) has given companies 45 days more to file financial results for the quarter ended March 2020 to provide relief to companies amid the spread of Covid-19.
A banker at a public sector bank who declined to be named said: “We were disappointed with RBI to overlook our need for relaxation in the additional provisioning of the cases under the June 7 circular.” Now is the time to take extraordinary measures to support banks, he said.
Due to the impact of Covid-19, many cases are stuck due to procedural problems. Banks therefore want more time to resolve these issues. The supply pressure for banks will also stem from cases where the settlement process has started. In cases of large tickets such as DHFL, the date to submit bids is likely to be extended beyond April 16. DHFL is undergoing settlement at NCLT since December 2. Banks accounted for around 15% of total exposure in the December quarter. .
Financial creditors have approximately Rs 41,000 crore positions in DHFL. Experts believe that banks should continue to make 15% more provisioning for the mortgage lender in the March quarter, according to RBI’s Master Circular on prudential standards of income recognition, asset classification and advances provisions.
However, it was a great relief to banks in terms of immediate liquidity because of the announcement of a 1% to 3% reduction in the cash reserve ratio. IBA had previously urged the regulator to reduce the cash reserve ratio (CRR) by 1% from its current rate of 4%. CRR is the amount that banks must maintain with RBI at all times. State Bank of India Chairman Rajnish Kumar said, “Rs 31,000 crore will be released to SBI due to a 1% CRR cut by RBI.”