The Indian Banks have been caught on the wrong footing due to the burst in the Real Estate Bubble.
The banking sector has demanded the Reserve Bank of India (RBI) to reduce provisions on restructured loan outstanding due of Rs 1 crore or less with small-ticket borrowers. Earlier, the RBI had asked banks to make a provision of 5% on all restructured loans with an outstanding due of Rs 1 crore or less.
Since a large number of restructured accounts are below Rs 1 crore, a 5% provisioning would hurt their profits. Some banks have suggested that the provisioning should be reduced to 2%.
In the restructured accounts with outstanding dues of over Rs 1 crore, banks are required to calculate the net present value in order to arrive at the provisioning requirement