A report released by Crisil indicates that banks will have to increase their quantum of provisions by Rs. 15,000 crore for the period of April 2013 to March 2015, if Reserve Bank of India executes the draft norms relating to restructuring of loans in the present form.
This move may reduce the profitability of banks by about 7 percent during the said period. But Crisil, which is a credit rating organization, called the removal of regulatory forbearance of RBI towards restructured advances and the stricter loans restructuring processes as positive steps.
Commenting on the central bank's proposed guidelines, Crisil said that these steps will increase stakeholder's trust and confidence in the asset quality of banks and may deter loan restructuring activities on a large scale.
The effects of greater provisioning will be more visible on state owned banks, as around 85 percent of total restructured loans belong to them. The process of restructuring of advances is expected to continue in the immediate future, but, at a slow rate.
Reportedly, if RBI's proposed norms on classification of assets and the guidelines on provisioning of restructured loans get implemented, then, the amount of bad loans reported by banks may witness a steep rise.