With the Reserve Bank of India changing loan restructuring guidelines, profitability of Public Sector Banks (PSBs) is expected to be hit in the current quarter ending March 31. The RBI withdrew debt restructuring tools to align them with the Insolvency and Bankruptcy Code. As a result, a large number of assets will be declared as non-performing assets or bad loans, due to which bottom lines of all public and private sector banks will take a hit at the end of the fiscal year.
The RBI not only scrapped loan restructuring schemes last month, but also ceased the functioning of Joint Lenders Forum (JLF), which is designed to bring down projected bad debts. The schemes shunned by RBI included Corporate Debt Restructuring, Strategic Debt Restructuring, Flexible Structuring of Existing Long Term Project Loans, and Sustainable Structuring of Stressed Assets or S4A
Punjab National Bank, hit severely by the Nirav Modi scam, will have to make payments worth close to Rs. 14,500 crore. Minister of State for Finance Shiv Pratap Shukla mentioned through a written reply in Rajya Sabha that the total loss reported by PNB due to frauds was Rs 341.03 crore in FY 2015-16, Rs 2,633.82 crore in FY 2016-17, and Rs 14,506.39 crore (includes contingent liability) in FY 2017-18 (till date).