RBI sets March deadline for banks to provision against second list of bad loans

According to rules, banks need to do 50 percent provisioning against secured loans it has provided and 100 percent when it comes to unsecured exposures.

People walk past a barricade inside the Reserve Bank of India (RBI) headquarters in Mumbai in this June 7, 2017 file photo. REUTERS/Shailesh AndradeReuters

The Reserve Bank of India (RBI) has asked lenders to set aside money for provisioning against stressed accounts named in the second list by March 31 2018, which is likely to be referred for insolvency proceeding, sources aware of the development confirmed.

Earlier in August, the RBI indentified about 30 accounts and asked banks to come with a resolution plan by December 2017 or refer them for bankruptcy proceedings under the Insolvency and Bankruptcy Code (IBC), BloomberQuint reported.

Earlier in June, the central bank directed banks to start bankruptcy proceedings against 12 identified loan defaulters. The 12 accounts constituted about 25 percent of the overall gross non-performing assets (NPAs) in the country's banking system.

According to rules, banks need to do 50 percent provisioning against the secured loan it has provided and 100 percent when it comes to unsecured exposures.

"RBI has asked lenders to provide for the second set of accounts in line with the provisioning requirement laid down for the 12 large cases first referred for insolvency," sources told BQ.

Currently the quantum of NPAs in the banking system is around Rs 10 lakh crore. Banks got around three quarters for provisioning for the first list set of firms referred for resolution. This time the central bank has expedited the process, by giving banks only until the end of the March quarter to make provisions.

But taking cue from the first set of insolvency proceedings, lenders have started early provisioning for the accounts in the second list.

Like State Bank of India (SBI), while announcing its second quarter results last week, said that it had already started provisioning for the 27 accounts in the second list.

The government also want banks to complete the provisioning requirements this year to get a clearer picture of the funds needed by respective banks.

Last month, the government allotted a mega Rs 2.11 lakh crore for recapitalising of public sector banks (PSBs) over next two financial years.