Tag: non-performing loans

Borrowers of syndicated loans over Rs 2,000 crore may not have to approach all lenders, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India is looking to revise guidelines and creating a new framework for syndicated loan arrangements of Rs 2,000 crore and above that would cut turnaround time.

The Indian Banks‘ Association has submitted a report to the RBI that looks into plugging the shortcomings in the existing arrangement.

How it will work?

Under the new framework, long-term borrowers need not approach all lenders for funding and getting sundry clearances.

It will have a detailed single point inspection of syndicated loan accounts and norms for a more structured approach by lenders to take care of the entire life cycle of the loan.

The new framework envisages the lead bank to draw terms and conditions, and setting up an independent administrative agent who manages the escrow account and routine loan inspections.

IBA will also be addressing issues such as information portal, drafting of common documents and identification of service providers.

The current system

At present, most consortium lending is down-selling of large value loans by the lead bank, while each bank comes up with its own additional terms and conditions.

Currently, the banking regulator supervises loan syndication through various circulars on loans and advances.

International model

The IBA also proposed strengthening the current ecosystem for the syndicated loan system and aligning it to international models such as those being practised in more developed financial markets.

The recommendations are in sync with the current framework followed in the US through Loan Syndications and Trading Association. The new framework may come up with specifics on minimum retention requirement, centralised supervisory oversight and audit, and development of a secondary market for corporate loans.

Banks will also explore whether such a model can deal with existing issues such as stressed assets and the issues relating to non-performing loans can be taken up while structuring security documents.



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Covid second wave raises asset risks for banks: Moody’s

Banking & Finance

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The coronavirus wave will lead to new problem loans in the retail and SME segments, but a severe asset quality decline is unlikely, according to Moody’s Investors Service.

Banks’ improved profitability, capital and loss buffers will help them absorb anticipated loan losses and maintain credit strength, the global credit agency said in a report.

Moody’s observed that India’s second coronavirus wave is increasing asset risks for banks, but the country’s economic recovery, a tightening of loan underwriting criteria and continued government support will prevent a sharp spike in problem loans.

Stable NPL ratio

The agency’s baseline expectation is that newly formed non-performing loans (NPLs) at public sector banks will increase nearly 50 per cent to about 1.5 per cent of gross loans annually in the next two years.

Nevertheless, banks’ average NPL ratios will remain broadly stable, driven by the resolution of legacy NPLs and acceleration of credit growth, the global credit rating agency said in a report.

“A severe deterioration of banks’ asset quality is unlikely, despite an expected rise in new loan impairments, particularly among individuals and small businesses that were hit hardest by the virus outbreak.

“This is because government initiatives like the emergency credit-linked guarantee scheme (ECLGS) have been effective in providing immediate liquidity for businesses,” Alka Anbarasu, a Moody’s Vice President and Senior Credit Officer, said.

In addition, accommodative interest rates and loan restructuring schemes will continue to mitigate asset risks, such that the coronavirus resurgence will delay but not derail the improvements in banks’ balance sheets that had begun before the pandemic.

Moody’s said the banks rated by it also have stronger loss-absorbing buffers, which will help them withstand the asset quality decline and maintain their credit strength.

Banks had reinforced these buffers in the past year through increases in capital, loan-loss reserves and profitability, it added.

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