Mumbai, India Public regional bank Your profits are ready to enjoy at the end of one year. A new instruction of the Reserve Bank of India (RBI) allows them to book benefits on security receipts (SRS) received against bad loans which are fully written and sold to asset reconstruction companies (ARCS). Significantly, this step is expected to add more than Rs 20,000 crore to the banks.
Decision is in the heart National asset reconstruction company (NARCL), a state-supported “Bad Bank” assigned the task of cleaning the financial system. Lenders, mainly by public sector banks, were removed Non-performing assets NARCL for about Rs 24,000 crore.
In turn, they were supported by 15% of the price in cash and the rest in SRS by government guarantee. Unlike the SRS issued by the private ARC, these devices come with a vested assurance of complete recovery. Nevertheless, till now, RBI had stopped banks from identifying the underlying value of these SRS until they received cash. Latest circular change.
If the poor loan is sold at a higher value than its net book price, the additional amount can now be recognized as immediate profit, provided that the deal includes only cash and government -backed SRS.
The change applies to both past and future transactions. However, SRS should still be cut off from core capital, and banks cannot pay dividends from them.
“Government’s guarantee SRS is a category in itself and thereafter requires a differential treatment in books of bank/financial institutions regarding the transfer of NPAs and continuous evaluation,” said Hari Hara Mishra, CEO of ARCS Association in India. He said that this rationalization would help banks to transfer the provisions accumulated in relation to these loans and transfer the front-end profit of surplus to transfer the financial system and improve liquidity in the financial system.
Bankers welcomed the move, arguing that it only accepts an unavoidable payment. Since the SRS of NARCL is government-supported, the risk of default is virtually untreated.
