A Reserve Bank of India (RBI) working group has recommended that the norms for restructuring of retail loans, including housing loans, should be more stringent than those applicable to companies under the corporate debt restructuring (CDR) mechanism.
The working group, in its report, said retail loans, including home loans, are different inasmuch as they do not depend for repayment on the productivity of the asset, which has been financed by a bank.
Similarly, loans to traders also differ from advances for production purposes because of various reasons. Cash flow problems such as cost escalation, delay in project implementation, change in working capital cycles, problems in procuring the raw material and retention of the market share of the product are not relevant for loans given to traders.
The working group was proposed in April 2006 to review and align existing guidelines on restructuring of advances other than those under CDR mechanisms, on the lines of provisions under the CDR mechanism. for companies.
The group comprised members from commercial banks, Indian Banks Association (IBA), RBI’s Department of Banking Operations and Development (DBOD) and Department of Banking Supervision (DBS).
It said the RBI need not prescribe detailed parametres for restructuring of loans to traders and retail loans, but should only issue “very broad” guidelines.
The group has suggested division of all non-CDR/Non-SME borrowers into five different categories. These include, borrowers engaged in industrial activities and not covered under CDR/SME debt restructuring mechanisms and the borrowers in agricultural and services sector having single bank arrangements but above Rs 1 crore; borrowers engaged in agricultural and services sector having multiple banking/consortium/syndicate arrangements; all borrowers including those in industrial sector with outstanding facilities below Rs 1 crore and trading accounts/retail loans, including housing loans and any unsecured advances irrespective of the amount.
(Courtesy: Business Standard)