Mumbai: Dragging defaulters to the National Company Law Tribunal (NCLT) and initiating insolvency proceedings will take a heavy toll on bank finances. According to ratings agency Crisil, banks will have to sacrifice nearly 60% of the value of the loans extended to the 12 indebted companies they have referred to the NCLT at the instance of the Reserve Bank of India (RBI).
The RBI has asked banks to set aside half the loan amount as a likely loss for cases referred to the NCLT. If the cases do not get resolved and the bank finds insolvency to be the only option, lenders would need to completely write off the loan. The provisions will all have to be made during the current fiscal.
According to a Crisil study, provisioning for banks will increase by 25% during the current financial year. The study shows that banks have already provisioned around 40% for these non-performing assets (NPAs) worth approximately Rs 2 lakh crore, or equal to a quarter of the NPAs in the banking system.
Rama Patel, director, Crisil ratings, said, “While the IBC route could entail a substantial markdown of loan assets by banks, the ability, especially of public sector banks, to absorb such losses and the consequent impact on their capital position will need to be monitored closely in the road ahead.”