Indian Banks: Slippery slope ahead

Thursday, December 04, 2008

Banks want RBI to ease Realty NPA norms

The Banks want to restructure loans to cash strapped Realty companies and not have the restructured loan classified as a non-performing asset. What the banks are really saying is that if a Realty company cannot pay the interest on a loan we will add the interest amount to the principal amount to create a new larger loan. They want to capitalize the interest.

This is a slippery slope....we have been down this road and all transparency in understanding the health of a bank's balance sheet was lost. Accounting gimmicks do not change the health of a loan.

I hope the RBI does not go along with this suggestion. If a bank is not willing to lend new monies to a realty company and the realty company cannot pay interest on the current loan then it fits the classical definition of an NPA and should be so classified.

The Government and RBI should find other means to help worthy Realty companies and not resort to accounting gimmicks to paper over the problems.

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