Mumbai, June 27: In view of the increasing amount of Non-Performing Assets (NPAs), banks have decided to set aside a sum of Rs 80,000 crore as part of their contingency plan. The amount will provide some cushioning to the banking system in case the NPAs are not recovered. Also Read - RBI Asks HDFC to Stop Selling New Credit Cards & Halt Digital Activities After Outages

The decision comes in the wake of the Reserve Bank of India’s (RBI’s) letter to the banks asking them to make 50 per cent provisioning 12 bad loans which are worth around Rs 2,00,000 crore. The stressed loans have already been sent to the National Company Law Tribunal (NCLT) to be worked with under the Insolvency and Bankruptcy Code, 2016 (IBC). Also Read - Reviving Economy: Will RBI Announce Another Rate Cut Soon? Check Details Here

The loans largely belong to the infrastructure and metal industries. The NCLT will appoint an interim insolvency professional who will monitor the companies’ assets and form a creditors committee. The committee will, in turn, appoint a  resolution professional to monitor the process. Also Read - Bank Holidays in December 2020: Private And Public Sector Banks to Remain Closed on These Days | Check State-Wise Full List

According to the RBI, the 12 largest companies holding NPAs include; The largest 12 accounts the RBI named are – Bhushan Steel (Rs 44,478 crore), Lanco Infra (Rs 44,365 crore), Essar Steel (Rs 37,284 crore), Bhushan Power (Rs 37248 crore), Alok Industries (Rs 22,075 crore), Amtek Auto (Rs 14,075 crore), Monnet Ispat (Rs 12,115 crore) Electrosteel Steels (Rs 10,274 crore), Era Infra (Rs 10,065 crore) Jypaee Infratech (Rs 9,635 crore), ABG Shipyard (Rs 6,953 crore) and Jyoti Structures (Rs 5,165 crore).

Krishnan Sitaraman, senior director of Crisil Ratings is reported by DNA as having said, “Banks have already provisioned about Rs 80,000 crore towards these 12 accounts, while another Rs 40,000 crore of provisioning may need to be done. If this is spaced out over the next 6 to 8 quarters, it would be more manageable for banks from a profitability perspective.

He then added, “Of the total haircut, banks may need to take on these accounts, this would be the extent of impact on their profit and loss accounts that banks will have to take going forward. If the entire incremental provisioning were to be taken this fiscal, it would mean banks will have to increase provisioning by around 25% this fiscal compared with an increase of 9% in the last.”

Similarly, Rama Patel the director of Crisil Ratings, said, “While the IBC route could entail a substantial markdown of loan assets by banks, the ability, especially of public sector banks, to absorb such losses and the consequent impact on their capital position will need to be monitored closely in the road ahead.”