Business Other News 19 Apr 2017 Make special provisi ...

Make special provisions for stressed sectors, says RBI

DECCAN CHRONICLE.
Published Apr 19, 2017, 6:31 am IST
Updated Apr 19, 2017, 6:39 am IST
The Reserve Bank of India (RBI) on Tuesday asked banks to make provisions at higher rates.
The Reserve Bank of India (RBI) on Tuesday asked banks to make provisions at higher rates.
 The Reserve Bank of India (RBI) on Tuesday asked banks to make provisions at higher rates.

MUMBAI: The Reserve Bank of India (RBI) on Tuesday asked banks to make provisions at higher rates in respect of advances to stressed sectors of the economy. While power, infrastructure, steel and real estate are witnessing high level of delinquencies, the Reserve Bank in its circular has specifically mentioned the telecom sector which is experiencing a dip in operating margins due to aggressive bidding and tariff war.

“More immediately, as the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, Board of Directors of the banks may review the telecom sector latest by June 30, 2017, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date,” RBI said.

 

The banks have also been asked to subject the telecom sector to close monitoring. The central bank said that the provisioning requirement mentioned in its earlier circular is the regulatory minimum and banks should make provisions at higher rates to ensure adequate provisions for loans and advances at all times. For standard loans, the banks set aside provisions of 5 per cent, which goes up in case the company fails to service its loans with in a prescribed time.   

Banks have been asked to put in place a board–approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors. The policy should be reviewed at least on a quarterly basis. The review may include quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/ stressed assets, industry performance and outlook, legal/regulatory issues faced by the sector among others. The reviews may also include sector specific parameters, RBI added.

 

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