RBI weighs incentives for banks to move IBC

May 25, 2019

According to people aware of the matter, RBI is considering a proposal to assign a ‘lower risk weight’ on loans to companies against which action has been initiated under the Insolvency & Bankruptcy Code (IBC) of 2016. “A lower risk weight would act as an incentive to banks as it would help them in conserving capital. It would be a regulatory change that would be very much within RBI’s domain,” a person familiar with the proposal told ET

Action Plan to Salvage Sunk Loans
Capital adequacy ratio determines the quantum of loan a bank can disburse at a given level of capital (i.e, equity and free reserves). A bank has to live with a string of business restrictions if its capital adequacy slips below the floor set by the regulator.

“A lower risk weights on IBC companies should be an acceptable regulation — simply because initiating corporate insolvency is a step towards resolution of NPAs (non-performing assets),” said a senior banker

Source : Economic Times