RBI releases new stiffen rules to manage bad loans

Reserve Bank of India (RBI) tightened asset restructuring rules for banks. The new rules include raising capital requirements and forcing banks to seek personal guarantees from controlling shareholders of companies whose loan terms are eased.

Weak economic growth in a decade prompted a surge in bad loans. Indian banks have increasingly sought to restructure troubled corporate loans instead of declaring them to be non-performing.

According to the new rules, from June 1 banks must set aside provisioning for 5 percent of the value of a loan that is newly restructured, from 2 percent previously.

The Reserve Bank of India said that requiring personal as opposed to corporate guarantees "will ensure promoters' 'skin in the game' or commitment to the restructuring package." Indian lenders sought to restructure a record $16.6 billion in loans in the year that ended in March, an increase of 38 percent year-on-year.

The Reserve Bank of India will not force banks to reclassify loans as non-performing in the event of project delays in the infrastructure and commercial real estate sectors, it said.