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PSBs look to frame common rules to value stressed assets

NEW DELHI: The finance ministry is working with state-run lenders to frame a common set of rules for valuation of stressed assets for faster resolution of loans extended by consortia of banks. A senior finance ministry official said a select group of bankers is working to arrive at common rules of valuation.

“It has been observed that in cases of joint lending, banks are unable to arrive at a common valuation, which stalls the resolution process. Further, individually, banks also fear that if they agree to a certain haircut, it may not stand the scrutiny of vigilance agencies,” the official said, adding that new norms will address such concerns.

The group was formed during ‘PSB Manthan,’ a two-day conclave of PSBs and has representation from all leading banks. A bank executive who is part of this group said banks could also get rating agencies empanelled for valuation, which will further strengthen the asset valuation mechanism.

“This will also work as a standard operating procedure (SOP) for all cases which are yet to be resolved through the Bankruptcy Law,” he said, adding the need is to get faster compromises and close followups. “Effective monitoring will further ensure better recoveries,” he said.

PSBs look to frame common rules to value stressed assets

Non-performing assets of PSBs have increased to Rs 7.33 lakh crore as of June 2017 from Rs 2.78 lakh crore in March 2015. In a recent report, rating firm ICRA said the surge in credit provisioning has adversely impacted capital ratios for public sector banks.

Experts said the common valuation norms will certainly benefit the smaller lenders because they blindly follow the lead bank in a joint lenders forum. “This is good risk management practice. If banks can arrive at a consensus and work out a resolution plan, they may not need to take large haircuts if these companies go into liquidation,” said MP Shorawala, a former independent director with Central Bank of India.

The government recently amended the Bankruptcy Code under which any promoter with a non-performing loan for over a year is not eligible to be a resolution participant.

Bankruptcy proceedings have been initiated at the National Company Law Tribunal (NCLT) for time-bound recovery from the 12 largest defaulters in six to nine months in NPA cases to the tune of Rs 1.75 lakh crore.

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Banking/Finance-Industry-The Economic Times

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