MUMBAI (Reuters) - The Reserve Bank of India (RBI) tightened rules on Thursday governing how banks and other financial institutions provision for restructured loans, based on the recommendations of a panel.
The RBI said the amount lenders must set aside against potential losses on new loans would rise to 5 percent with effect from April 1, 2013. It had already increased the provisioning requirement to 2.75 percent last year.
The amount lenders must set aside for loans that have already been restructured will rise to 3.75 percent from March 31, 2014 and then to 5 percent with effect from March 31, 2015, the RBI said in a statement.
The central bank also said that with effect from April 1, 2015, restructured accounts would be immediately classified as sub-standard.
Non-performing assets that have been restructured will continue to have the same asset classification as prior to restructuring, it said.
The RBI set up a working group early in 2012 to review its guidelines on restructuring of loans by banks and financial institutions and suggest changes taking into account the best international practices and accounting standards.
It reported in July and the central bank first lifted provisioning amounts in line with its recommendations in November.
With economic growth in India slowing and some companies seeing pressure on their revenue and margins, there are rising concerns about asset quality at India’s banks.
India’s GDP growth is on track for its worst year in a decade, and recently the RBI lowered its growth forecast for the fiscal year ending in March to 5.5 percent from 5.8 percent earlier.
Reporting by Shamik Paul; Editing by Catherine Evans