Bid to prevent assets from being downgraded on restructuring.
-------------------------------------------------------------------------------- The move will have a positive impact on banks' bottomline as they not only can book interest but also need not make provisioning. -------------------------------------------------------------------------------- Our Bureau Mumbai, Nov. 4 Anticipating possible deterioration in home loan portfolios of scheduled commercial banks (SCBs), the Reserve Bank of India has extended the guidelines pertaining to restructuring that is currently available to industrial units, small and medium enterprises (SMEs) etc, to encompass home loans given by banks. The implication of this measure is that a home loan, upon restructuring, will not be downgraded. This move will have a positive impact on banks' bottomline as they not only can book interest but also need not make provisioning. Banks, especially from the private sector, which went the whole hog expanding their home loan portfolios in the last few years, will be benefited the most from the latest move by RBI. Bankers feel that home loan defaults could rise in the current scenario of economic slowdown. According to the central bank, SCBs can now avail themselves of the special regulatory treatment relating to asset classification upon the restructuring of home loans. Hitherto, the regulator had prescribed a ceiling of 10 years on the repayment period of restructured advances (other than infrastructure advances), thereby making housing loans, which typically have a tenure ranging between 15 and 20 years, ineligible for the special regulatory treatment. According to an RBI circular, the ceiling of 10 years, over the repayment period of the restructured loans, would not be applicable for restructured housing loans, subject to compliance with all other terms and conditions prescribed by it. The board of directors of the banks should prescribe the maximum period for restructured advances keeping in view the safety and soundness of advances. "This move by the central bank will prevent banks' home loan assets from being downgraded once they are restructured. This will have a positive impact on the bottomline of banks," said Mr R.K. Bansal, Executive Director, IDBI Bank. Home loans can be restructured either by extending the repayment period or by giving a moratorium on interest payment for a certain period. The central bank, however, said that the restructured housing loans should be risk weighted with an additional risk weight of 25 percentage points to the risk weights prescribed. Currently, banks have to assign a risk weight of 50 per cent on loans up to Rs 30 lakh and 75 per cent on loans of Rs 30 lakh and above. http://www.thehindubusinessline.com/2008/11/05/stories/2008110551920600.htm "All you need is ignorance and confidence; then success is sure." --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
