Provisioning reversal should have been co-terminus with June 7 circular: PwC

The advisory firm PwC on Monday raised concern on the 30% debt repayment clause for reversal of provisioning under one time resolution scheme, as against 10% debt to be cleared for the same benefit in June 7,2019 circular of Reserve Bank of India (RBI).

In a webinar organised by the firm on Monday, PwC said that issue should be properly represented to the RBI for consideration. The lenders are mandated to set aside 10% capital for availing one time resolution scheme. However, the central bank allowed 100% reversal in provisioning after a borrower pays 30% of debt.

Sanjeev Agarwal, Partner, Deals said, “I hope it gets represented to RBI that biggest impediment to consider for lenders in this scheme is that reversal of the provisioning will happen only after 30% of the debt is repaid.”

Giving example of June 7 circular, he said, “While you become non-performing asset (NPA) on day 1, but if you can pay 10% to the same management, you can get upgraded to standard. Now obviously paying pack 30% will be much longer time period than 10%.” He also said that ideally there should not have been a provisioning for monitoring period or within monitoring period, but even if it is there, it should not be more than June 7 circular.

PwC also said that accounts fully regularised after March 1 may not be eligible for resolution as per the scheme announced by the regulator. The regulator had earlier decided to grant banks a one-time window to recast corporate loans with necessary safeguards. The central bank had kept strict barriers for eligibility of borrower under recast window. The borrower should not have dues more than 30 days as on March 1, for being eligible. However, the advisory firm believes that borrowers who have cleared dues after March 1 and still impacted by Covid-19 were not getting rewarded.

The Reserve Bank of India (RBI) had earlier constituted a 5 member expert committee to recommend financial parameters and sector specific benchmarks for resolution under KV Kamath. The expert committee will validate resolution plans where debt is more than Rs 1,500 crore, without going into the commercial aspects.