In a letter to RBI, banks voice concerns over February 12 circular, IL&FS crisis

First on the agenda was the February 12 circular on resolution of bad loans. The banks have once again requested the RBI to do away with the one-day default rule and instead allow financial resolution to start only after 60 days, ie only after the account is categorised as SMA 2 (Special Mention Account 2, with dues pending for 60-90 days), the sources said.

In addition, if the resolution plan under the bad loans circular fails, banks have requested that the National Company Law Tribunal referral for initiating bankruptcy proceedings to happen only after 60 days, instead of 15 days stipulated in the guidelines. Further, banks have requested the central bank to allow a resolution plan be passed with 66 percent majority of the lenders instead of 100 percent approval rate.

Second issue related to IL&FS Group loans. The banks have expressed concerns that lenders have so far been restrained from initiating any enforcement action for recovery of their dues due to the NCLAT order. The sources pointed that a substantial portion of the Rs 60,000 crore exposure of the banking system to the IL&FS Group companies is at the risk of becoming NPA or non performing asset, if the RBI does not allow them dispensation. Banks have sought a standstill arrangement for these loans for at least six months, as per the sources.

Thirdly, banks have also sought relaxation in risk weights for exposures to corporates and retail in line with new Basel III requirements, which will allow capital requirements to come down between 25-40 basis points for many banks and be a big relief to banks facing capital constraints who are unable to lend.

Fourthly, banks, in the letter, have sought a one time restructuring relief for MSME loans without changing asset classification, which the RBI recently allowed.

And lastly, the banks wrote about issues relating to ATMs impacting banks. They have sought various relaxations on cassette swap rules, cash management activities, replacement of magnetic strip cards to EVM chip cards and software upgradation for ATMs, as per sources.

The letter also mentioned KYC related issues, where banks have requested the central bank to issue revised e-KYC directions for lenders in the light of the recent Supreme Court ruling in the Aadhaar matter.

The Indian Banks Associations, the representative body of banks in India, is set to meet with Reserve Bank of India officials on January 17 to discuss these issues.