RBI's NPA resolution move is credit positive, Moody's says
The Reserve Bank of India's (RBI) move last week to resolve 12 borrowers responsible for a quarter of total non-performing assets (NPAs) of Indian banks is credit positive, ratings agency Moody's Investors Services said on Monday.
The Reserve Bank of India's (RBI) move last week to resolve 12 borrowers responsible for a quarter of total non-performing assets (NPAs) of Indian banks is credit positive, ratings agency Moody's Investors Services said on Monday.
Moody's said, "This is credit positive for India’s banks because any meaningful resolution under this plan can help improve their overall asset quality. Additionally, it also will set a precedent for resolving nonperforming loans from smaller borrowers. RBI has asked banks to also review other NPAs and finalise a resolution plan over the next six months."
Companies in sectors like steel, power, infrastructure, telecom, etc are the highest borrowers in India that constitute a major chunk of these NPAs or bad loans.
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Last month the government passed an ordinance that gave the RBI greater legal authority to intervene in non-performing loan resolutions. Moody's said, "Given the strict timelines to resolve a case under the IBC within a maximum period of 270 days (initially 180 days, with a onetime 90-day extension), after which a company will be automatically liquidated, we expect that this directive will significantly expeditethe resolution process and will help in loan recoveries."
ALSO READ: Bad Loans Cleanup Phase 2: Govt says insolvency cases to be resolved within 90 days
Moody's said that asset quality of banks in India has deteriorated sharply over the past few years, although the pace of this fall has moderated in the past few quarters.
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