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RBI fiat to banks on managing debts

The Reserve Bank today asked banks to proactively tackle the problen of bad debts and improve credit risk management systems. The central bank has also allowed the bank to extend funds to specialized firms to acquire and set right troubled companies. An RBI notification said banks can extend finance to specialized entities established for acquisition of troubled companies subject to the general guidelines. The banks should, however, assess the risks associated with such financing and ensure that these entities are adequately capitalized, and debt equity ratio for such entity is not more than 3:1. The RBI also said banks should make use of the proposed Central Repository of Information on Large Credits (CRILC) and the boards of banks should put in place a system for proper and timely classification of borrowers as willful defaulters or non-cooperative borrowers. In some sort of a relief to the banks, the RBI said it has advised that if the banks refinance any existing infrastructure and other project loans by way of take-out financing, even without a pre-determined agreement with other banks or FIs, and fix a longer repayment period, the same would not be considered as restructuring. Such loans should be substantially taken over (more than 50% of the outstanding loan by value) from the existing banks or financial institutions. This will help in reduction of NPA as the re-finance given to infrastructure project will not be classified NPA.

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