RBI outlines action plan to tackle NPAs

• The RBI has outlined a corrective action plan to minimise rising non-performing assets (NPAs). The plan would include incentivizing early identification of problem cases, timely restructuring of accounts, which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.

Action Plan:

• The RBI has said that, it would set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders.
• Banks will have to furnish credit information to CRILC on all their borrowers having aggregate fund-based and non-fund based exposure of Rs.5 crore and above.
• While all scheduled commercial banks will mandatorily contribute their credit information on their borrowers/customers as proposed, the RBI said that systemically important non-banking financial companies (NBFC-SI) would also be asked to furnish such information.
• In addition, banks would have to furnish details of all current accounts of their customers with outstanding balance (debit or credit) of Rs.1 crore and above.
• The RBI said that before a loan account turns into an NPA, banks should identify incipient stress in the account by creating a new sub-asset category, ‘Special Mention Accounts’ (SMA). Within the SMA category, there should be three sub-categories: SMA-NF non-financial (NF) signals of incipient stress; SMA-1 principal or interest payment overdue between 31-60 days; SMA-2 principal or interest payment overdue between 61-90 days.
• Banks will be required to report, among others, the SMA status of the borrower to the CRILC. Individual banks will have to closely monitor the accounts reported as SMA-1 or SMA-NF as these are the early warning signs of weaknesses in the account. “They should take up the issue with the borrower with a view to rectifying the deficiencies at the earliest.”
• The RBI also said that reporting of an account as SMA-2 by one or more lending banks/NBFC-SIs will trigger the mandatory formation of a joint lenders’ forum (JLF) and formulation of corrective action plan (CAP). Further, with a view to limiting the number of JLFs to be formed, it is proposed that JLF formation would be made mandatory for distressed corporate borrowers, engaged in any type of activity, with aggregate fund based and non-fund based exposure of Rs.100 crore and above.