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04-Aug2017

Banks may require 20% extra provisioning for 50 large NPAs: ASSOCHAM-CRISIL study

A joint study carried out by the industry body Associated Chambers of Commerce & Industry of India (ASSOCHAM) and rating agency CRISIL has stated that in order to absorb any losses, banks may require an incremental provisioning of 20 percent for 50 large stressed assets worth over Rs 4.3 lakh crore. These 50 large accounts are from the sectors such as construction, power and metals, among others and constitute about half of the gross non-performing assets (NPAs) of the banking sector. It also noted that while banks may have already provisioned for a part of these exposures, they need to adequately capitalise to absorb such losses which could fuel credit growth and support the next leg of economic growth.

The report titled 'IBC - Protecting stakeholders, improving ease of doing business' has said that there is a need to address various challenges such as inter-credit conflicts, ability of large corporates to delay the recovery process and burden on the National Company Law Tribunal (NCLT)/Debt Recovery Tribunal (DRT). It also said that roll-out of the ecosystem including adequate number of tribunals, insolvency professionals and information utilities, a limited timeline for the formulation of resolutions and access to the secondary market are needed in case of liquidation for successful implementation of the IBC.

ASSOCHAM-CRISIL study noted that the success of the code hinges on strengthening its ecosystem, which will help in protecting the interest of stakeholders, instilling financial discipline among borrowers and create a robust platform to attract investors. It said though the IBC is expected to face teething troubles before fully taking off, its stakeholders are expected to reap greater benefit in the long run. It added that along with banks and asset reconstruction companies (ARCs), the IBC will benefit corporates, professionals and employees, boost investor confidence, and facilitate deepening of the domestic corporate bond market.


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