CA institute asks RBI to withdraw circular on banks’ bad loans

New Delhi, March 17 The CA Institute President said that the RBI circulars on bad loan recognition and provisioning could distort bank balance sheets as on March 31 this year. When asked as to what course of action would he expect the central bank to take, the Institute of Chartered Accountants of India (ICAI) President, Mr Uttam Prakash Agarwal, told a press conference that the RBI should withdraw the circulars, as they are “not healthy for the Indian banking industry”. It will not give a clear picture of NPAs (non-performing assets). The recent RBI circulars on ‘prudential guidelines on restructuring of advances by banks’ could have the effect of disguising bad loans as “standard assets” for at least a period of 210 days, ICAI officials noted. In the wake of the spillover effects of the global downturn affecting the Indian economy, the RBI had sought to provide some breathing space to financially stressed borrowers by relaxing the asset classification norms for accounts that were being restructured. For all accounts that were categorised as “standard assets” as on September 1, 2008, a simple application from a borrower before March 31 2009 for a restructuring proposal that would be completed in 120 days would be enough to treat such accounts as “standard assets”. By this treatment, it appears that no NPA would get reflected in the balance sheet of banks as late as December 31, 2009, the ICAI has said. In the GTB bank collapse case, the auditors came under scanner for inadequate provisioning of non-performing assets.

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