Keeping in view of the bank’s margins which are under pressure due to the global economic slowdown, the Reserve Bank of India has provided the banks a breather by revising the method of calculating the current value of restructured loans. The RBI has been decided to modify the formula for computing diminution in the fair value of restructured loan. Diminution means the reduction in the value of loans that have come for restructuring, due to reduction in interest rate or rescheduling of repayment of principal.
At present, while restructuring the loans, banks take into account the benchmark lending rate, Prime Lending Rate, which have been on a rise during the last few years, the RBI said. It is adding to the financial difficulties being faced by banks due to the current downturn. The RBI further said that in the annual balance sheets for the year ending March 2009, the banks will also have to disclose the amount and number of accounts in respect of which applications for restructuring are under way.
Indian banks have restructured Rs.40,304 Cr loans in year to March 31, 2009. This figure is going to rise since State Bank of India (SBI), a biggest lender is yet to come out with its figures. As of now, Axis bank is topping the list with the restrucutured loan of Rs.9961.7 Cr. Under restructural scheme, the banks, depending on the genuineness of the borrower may either give the borrower additional time for repayment or EMI holiday for a while instead of declaring the borrower as defaulter.
More and more applications are coming for restructuring the loans. But, if the economic situation doesn’t improve, and with more and more job loses, the borrowers may not be in a position to pay-back even under restrucutured loan scheme. In housing sector, with the real estate rates falling by 40-50% in urban areas, inventory valuations also will also dip drastically and a sub prime crisis may soon develop in India.
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