The RBI's pierce to travel the ability that banks must be make for restructured loans is credit certain for Indian banks, Moody's Investor Services has said.
The is since the increased provisioning will intensify their loss assimilation capacity, the general rating group mentioned in a note to its investigate clients.
At the new financial process review, the Reserve Bank of India hiked the provisioning on restructured loans from 2 per cent to 2.75 per cent.
The pierce will increase to bank managements' inducement to upgrade loan underwriting standards to intensify item quality, Moody's credit standpoint said.
Increased provisioning on restructured loans would outcome in Indian banks stating descend net profits. But banks' on the whole loss assimilation capacity will gain from aloft provisioning cover, the rating group said.
The decrease in Indian banks' item high quality is characterised not usually by a 46 per cent burst in sum non-performing properties (NPAs), but moreover the more than doubling of restructured loans over the past year.
For open zone banks, as ample as 6-10 per cent of their sum loans are restructured loans.
The RBI pierce is moreover notable in its timing, Moody's said. This is since the middle bank motionless to exercise the testimonial forward of other recommendations from its working group.
If this signals an stepping up process pull on banks to upgrade their inner danger monitoring processes, that would be great headlines for bank creditors, Moody's credit standpoint said.
An RBI working group tasked with reviewing the existing prudential discipline on restructuring of loans in July submitted a inform recently.
The working group had, amid other recommendations, draft an increase in the ability on restructured loans to 5 per cent from 2 per cent over a two-year period.
Srivats.kr@thehindu.co.in