MUMBAI: Lenders have written to RBI in search of a reprieve for some segments from latest instructions to forestall the evergreening of loans by routing funds to debtors by alternate funding funds (AIF).
Evergreening of loans refers to a apply the place a lender offers extra funds or extends the maturity date of an current mortgage to a borrower struggling to satisfy compensation obligations. That is performed to forestall the mortgage from being categorized as non-performing or in default. In Might 2023, RBI governor had cautioned banks that the regulator had discovered cases of evergreening of loans.
On December 19, RBI barred banks and non-banking finance corporations from investing in AIFs linked to borrowing corporations. RBI additionally requested lenders to liquidate investments in funds which have invested of their debtors’ corporations by one month. If lenders didn’t liquidate such investments, they have been required to make full provisions on the mortgage.
One of many representations obtained by RBI is that there must be a differentiation between investments made in funds that spend money on wholesome corporations and funds which are created particularly to spend money on distressed companies.
As an example, the government-backed Swamih Funding Fund (Particular Window for Reasonably priced and Mid-Earnings Housing) is an AIF devised for funding in caught housing actual property tasks through which banks have invested.
Lenders are additionally nervous in regards to the 100% provisioning that’s required to be made on publicity to AIFs.
Evergreening of loans refers to a apply the place a lender offers extra funds or extends the maturity date of an current mortgage to a borrower struggling to satisfy compensation obligations. That is performed to forestall the mortgage from being categorized as non-performing or in default. In Might 2023, RBI governor had cautioned banks that the regulator had discovered cases of evergreening of loans.
On December 19, RBI barred banks and non-banking finance corporations from investing in AIFs linked to borrowing corporations. RBI additionally requested lenders to liquidate investments in funds which have invested of their debtors’ corporations by one month. If lenders didn’t liquidate such investments, they have been required to make full provisions on the mortgage.
One of many representations obtained by RBI is that there must be a differentiation between investments made in funds that spend money on wholesome corporations and funds which are created particularly to spend money on distressed companies.
As an example, the government-backed Swamih Funding Fund (Particular Window for Reasonably priced and Mid-Earnings Housing) is an AIF devised for funding in caught housing actual property tasks through which banks have invested.
Lenders are additionally nervous in regards to the 100% provisioning that’s required to be made on publicity to AIFs.
