The Reserve Bank of India is coming up with detailed guidelines on the Basel-II shortly. These are the norms every Indian bank will have to comply with.
A major change will be brought about by the new norms and banks would no longer need to assign 9% risk weightage on all classes of assets. Indeed, they would have to provide capital based on the credit assessment of the rated asset. This could vary from as low as 20% for AAA-rated assets to 150% for assets rated BB and below.
The consultative paper put out by the RBI also suggests that ratings issued by external rating agencies, that are empanelled, would be eligible for use when assigning preferential risk weightage . Rating obtained by an external agency will be a prerequisite for all borrowings above Rs. 5 Crs . presently. The same will gradually be made compulsory for borrowings above Rs. 1 Cr.
We are empanelled with the rating agencies to assist the companies to in providing ratings to RBI approved rating agencies.
NPA (Non Performing Asset) is the most worrisome term for any lending institution because of compulsory provision norms in force. And borrowers are no exception to feel the heat from the lending banks / institutions. Problem starts for a borrower the moment the bank identifies the account as “Prone to NPA”.
Any careless handling of financial affairs thereafter will give rise to one crisis after another leading up to recovery proceedings by filing suits and auctioning of assets. Borrowers generally are at their wits’ end in handling such matters.
Trigger points for a borrower’s worries are broadly classified as under:
- “Prone to NPA” threat from lending Banks – pressure builds up to pay installment / interest / over dues to avoid NPA tag. In short, liquidity problems start.
- Notice of Recall
- Declaring the account as NPA from a particular date – options for raising money from other banks / institutions become ‘NIL’.
- Suit filed with DRT
- Notice issued under SARFAESI Act for recovery through auction of assets
- All assets of principal borrowers (Proprietor / Partner / Promoter directors) and guarantor come under threat of attachment
- The remedy for such unpleasant situations are generally NOT common and fixed. Problems vary from borrower to borrower / industry to industry / region to region / bank to bank. Hence, they need to be handled very carefully by experts who have hands-on experience in handling such matters.
- estructuring of financials / rescheduling term loan repayment periods in tune with revised cash flows
- Conversion of overdue portion of working capital into a Working Capital Term Loan (WCTL) with comfortable repayment period in tune with cash flow
- In case of nonviable units, settling dues by disposing of assets and request the bank / institution for OTS (One Time Settlement)
Handling Sick Units / NPA cases requires a lot of patience and thorough understanding of the issues. Mr. Sivakumar A. Iyer , one of our founders, is an expert at handling such typical cases. He has been handling such cases since 1994 and has efficiently solved huge number of such cases.
Solutions broadly fall under the following categories: