Ratings agency Care has said loan restructuring will peak next fiscal to reach Rs 3.12 lakh crore if the latest Reserve Bank guidelines are accepted without any changes.
"If the draft RBI guidelines on restructured accounts are implemented as it is, it will prompt banks to carry out most of the restructuring in pipeline during the fourth quarter of this fiscal and through next fiscal in an attempt to upgrade fresh restructured accounts by the end of FY15 and to avoid incremental provisioning of 1.25 per cent," Care said in a note.
The report says there will be new loan restructuring worth Rs 57,782 crore taking total recast loan book to Rs 3,12,022 crore next fiscal (2013-14).
Under the draft RBI guidelines on provisioning for standard restructured accounts, banks will be asked to set aside 3.75 per cent for each of the restructured accounts in FY14, which will increase to 5 per cent by FY15. Provisioning requirement stands at 2.75 per cent at present, which was 2 per cent till last October.
The draft norms also make it easier for banks to reclassify accounts as well as the restructured assets as standard accounts.
The report, however, says a reclassification will see the total quantum of restructured books going down as assets get reclassified and upgraded under the revised norms.
"At least 25 per cent of the outstanding restructured assets of FY12 would be upgraded instantly, while 60 per cent of the outstanding standard restructured assets of FY12 will be restructured afresh in FY13," it said, reducing its estimates on total recast book up to Rs 2,80,000-3,10,000 crore from its earlier estimate of up to Rs 4,00,000 crore by FY13.
Additionally, the stress on contribution from promoters, who have been asked to bring in 15 per cent of bank sacrifices or 2 per cent of debt restructured, "may temper the pace of restructuring, as only the genuine cases will be referred for restructuring during FY13-FY15," the note said.
The draft norms on provisioning are expected to push up total provisioning by Rs 5,000-7,000 crore till FY15. Public sector banks are expected to be hurt the most because of new rules as they carry the maximum bad books and CDR accounts, while private sector ones, with lower sizes of restructured assets, are expected to have a "muted impact", the report said.
Overall, the report has welcomed the guidelines saying they are a step towards integrating the country with the rest of the world.
"The RBI notification with respect to restructured assets disclosure could enable greater accounting and
reporting transparency governing asset quality of banks and financial institutions," it added.