May 30, 2013 / 3:32 PM / 4 years ago

UPDATE 1-Indian central bank tightens rules on managing bad loans

(Adds details of new rules)

MUMBAI, May 30 (Reuters) - India's central bank on Thursday tightened asset restructuring rules for banks after the weakest economic growth in a decade prompted a surge in bad loans.

The new rules include raising capital requirements and forcing banks to seek personal guarantees from controlling shareholders of companies whose loan terms are eased.

Indian banks have increasingly sought to restructure troubled corporate loans instead of declaring them to be non-performing.

Under the new rules, from June 1 banks must set aside provisioning for 5 percent of the value of a loan that is newly restructured, from 2 percent previously.

The central bank said that requiring personal as opposed to corporate guarantees "will ensure promoters' 'skin in the game' or commitment to the restructuring package."

Indian lenders sought to restructure a record $16.6 billion in loans in the year that ended in March, an increase of 38 percent year-on-year.

The Reserve Bank of India will not force banks to reclassify loans as non-performing in the event of project delays in the infrastructure and commercial real estate sectors, it said. (Reporting by Suvashree Dey Choudhury; Editing by Tony Munroe/Ruth Pitchford)

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