Just yesterday, the RBI increased the provisioning for restructured assets from the existing 2% to 2.75%. For the uninitiated, restructured assets are nothing but loans whose terms have been modified on account of deterioration in the financial health of the borrower. The central bank's announcement has come at a time when requests for loan recasts have hit an all-time high and are likely to cross Rs 3.25 trillion in the current fiscal. Data released by the Reserve Bank of India (RBI) suggests that corporate debt restructuring (CDR) cases shot up to 392 as on March 2012. This is a significant jump from 225 in March 2009. In fact, the total amount u nder CDR during this period has surged from Rs 958.15 bn to about Rs 2.06 trillion.
No wonder the RBI was prompted to raise the provisioning requirements. It is said that the increase in provision would shave off nearly 4% of the banks' profits. Though the banks may not be too happy with this move, any move in the direction of prudence is welcome. And more so at a time when the global financial system is suffering from the consequences of its past recklessness.
No wonder the RBI was prompted to raise the provisioning requirements. It is said that the increase in provision would shave off nearly 4% of the banks' profits. Though the banks may not be too happy with this move, any move in the direction of prudence is welcome. And more so at a time when the global financial system is suffering from the consequences of its past recklessness.
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