By MR Umarji
The Reserve Bank of India has recently prescribed provisioning requirements for banks in cases where insolvency resolution process is initiated against any company. The banks initiating insolvency resolution process have to make a provision of 50% of the secured portion of the loan and 100% of the unsecured portion. The provisions will be allowed to be reversed if post restructuring the account becomes standard, but if no resolution plan is approved and company is ordered to be liquidated, 100% provision has to be made.
In terms of asset classification norms for banks, the trigger for provisioning (15% of loan outstanding) is default for 90 days and classification of the account as sub-standard. As against such norms, if i…
Read the full article at: http://blogs.economictimes.indiatimes.com/et-commentary/stringent-provisioning-a-disincentive-to-insolvency-process/