GET Stock QuotesNews18 APP
News18 English
Powered by cricketnext logo
»
1-min read

RBI's Move on NPA Resolution Credit-positive For Banks: Moody's

Global credit rating agency Moody's Investors Service on Monday dubbed as 'credit-positive' for Indian banks the RBI plans to resolve 12 large bank loan accounts accounting for 25 percent of the banking system's non-performing assets (NPA).

IANS

Updated:June 19, 2017, 8:44 PM IST
facebookTwittergoogleskypewhatsapp
RBI's Move on NPA Resolution Credit-positive For Banks: Moody's
In this file photo, the Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai. (Photo: Reuters/Danish Siddiqui)
Mumbai: Global credit rating agency Moody's Investors Service on Monday dubbed as 'credit-positive' for Indian banks the RBI plans to resolve 12 large bank loan accounts accounting for 25 percent of the banking system's non-performing assets (NPA).

The rating agency said it expects that the effectiveness of the resolutions under the Insolvency and Bankruptcy Code (IBC), 2016, will be limited.

According to Moody's, the Reserve Bank of India (RBI) move is credit-positive for banks because any meaningful resolution under this plan can help improve their overall asset quality.

"Additionally, it also will set a precedent for resolving non-performing loans from smaller borrowers," Moody's said.

The RBI has asked banks to also review other NPAs and finalise a resolution plan in six months.

This plan follows the passage last month of an NPA ordinance that provides the RBI with greater legal authority to intervene in non-performing loan resolutions.

Under the Code, a case has to be resolved within a maximum of 270 days, after which a borrower company would be liquidated. Moody's expects a faster loan dues resolution process.

According to Moody's, though the RBI has not yet provided details of the provisioning norms, the directive is expected to negatively affect banks' profitability over the next year if they need to take large write-downs relative to their existing loan-loss reserves for those assets.

This also will accentuate the capital needs of weaker public sector banks, which may require a large capital infusion from the Indian government.

Moody's expects the effectiveness of resolutions under the IBC to be limited.

"In particular, once a resolution under the IBC is initiated, the company's control shifts from existing management to insolvency professionals," Moody's said.

"Nevertheless, given the nature of the assets, we expect that the management team in some cases will continue to play a role in preserving day-to-day operations," the credit rating agency added.

In addition, the strict timelines of a resolution may force some companies into liquidation and may have a negative effect on banks, particularly in cases where little collateral is available.

Also Watch

Read full article
Most Active
Company Price Change %Gain
Sun Pharma 585.50 +8.25 +1.43
Vakrangee 55.10 +2.60 +4.95
HDFC 1,886.95 -19.80 -1.04
Bajaj Finance 2,364.60 +28.55 +1.22
Biocon 643.00 +13.35 +2.12
Company Price Change %Gain
Titan Company 873.00 -3.70 -0.42
Vakrangee 55.10 +2.60 +4.95
Bajaj Finance 2,365.00 +29.90 +1.28
Sun Pharma 585.85 +9.55 +1.66
TCS 1,817.70 +5.90 +0.33
Top Gainers
Company Price Change %Gain
Vedanta 234.15 +5.60 +2.45
Lupin 918.40 +15.50 +1.72
Infosys 1,267.90 +20.05 +1.61
Sun Pharma 585.50 +8.25 +1.43
UltraTechCement 3,697.00 +55.95 +1.54
Company Price Change %Gain
Vedanta 233.90 +5.25 +2.30
Sun Pharma 585.40 +9.10 +1.58
Infosys 1,266.80 +20.35 +1.63
Wipro 259.65 +1.70 +0.66
HUL 1,617.95 +10.40 +0.65
Top Losers
Company Price Change %Gain
BPCL 416.00 -10.35 -2.43
IOC 167.25 -2.75 -1.62
NTPC 155.10 -2.20 -1.40
Tata Motors 303.55 -4.45 -1.44
ITC 262.20 -2.95 -1.11
Company Price Change %Gain
Tata Motors 303.40 -4.75 -1.54
ONGC 157.80 -1.65 -1.03
NTPC 155.20 -1.70 -1.08
ITC 262.40 -2.75 -1.04
Coal India 262.15 -2.95 -1.11

Live TV