Keep an eye on slippages in rejigged assets: RBI to banks

Keep an eye on slippages in rejigged assets: RBI to banks

Subject : Economy

Context:

RBI asks banks to closely monitor slippages in restructured assets.

Details:

• PSBs restructured around 10 lakh accounts in 2021-22 compared to 3 lakh accounts in 2020-21.
• The private sector lenders restructured close to 45 lakh accounts in 2021-22 as against 2 lakh accounts in 2020-21.
• gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) was 5 per cent in end-September 2022 against 5.8 per cent in 2021-22.
• Large borrowal accounts’ share in total NPAs declined during the year to 63.4 per cent from 66.4 percent in 2020-21.
• gross non-performing assets (GNPA) ratio of scheduled commercial banks (SCBs) has been declining sequentially to reach 5 per cent in end-September 2022 from 5.8 per cent in 2021-22.

Concept:

What is loan restructuring?

It is a method used by businesses, individuals, and even governments to avoid defaulting on current debts by negotiating reduced interest rates. When a debtor is in financial distress, loan restructuring is a less expensive alternative to insolvency. It can assist both the debtor and the creditor.

Loan restructuring 1.0

The RBI issued an EMI moratorium on March 27, 2020, in response to the COVID-19 situation. After the declaration, RBI urged all financial firms to implement a board-approved policy that would refund or adjust interest charged to debtors during the moratorium period.

Loan restructuring 2.0

Under this scheme, debtors had the option to either opt for a moratorium or request for a suspension of their EMI payments for a few months. Alternatively, they could also request their EMIs to be reduced, so that they could continue making regular payments.