What changed
RBI accepted the Mahapatra Working Group's recommendation to remove asset classification benefits on restructuring, effective April 1, 2015. The only exception is for changes in date of commencement of commercial operations (DCCO) for infrastructure and non-infrastructure project loans, which retain forbearance. This marks a shift from the earlier policy where standard restructured accounts could stay standard and NPAs could avoid further deterioration.
What it means for you
Banks must prepare for stricter asset quality recognition from April 2015, as restructured loans will no longer enjoy preferential classification. This could increase provisioning requirements and impact capital adequacy, especially for lenders with large restructured portfolios. The DCCO exception for infrastructure projects provides some relief, but overall, the move aligns Indian norms with global practices and reduces regulatory forbearance.
What you must do
- Review existing restructured loan portfolios to assess impact of classification downgrade from April 1, 2015.
- Increase provisioning buffers for standard restructured accounts that may slip to NPA post-forbearance withdrawal.
- Engage with borrowers to expedite resolution or repayment before the forbearance ends.
- Update internal credit policies and stress-testing models to reflect the new asset classification regime.
- Monitor RBI's future circulars for any transitional arrangements or clarifications on DCCO exceptions.
Who it affects
All scheduled commercial banks (excluding RRBs), Banks with significant restructured advance portfolios, Infrastructure and project finance lenders, Credit risk and NPA management teams
When does the withdrawal of forbearance take effect?
The regulatory forbearance on asset classification for restructured advances will be withdrawn from April 1, 2015. The source states forbearance is withdrawn for all restructurings effective from that date, but does not specify treatment of restructurings before that date.