RBI's June 7 circular raises NPA woes for merging public sector banks

Fear delay in execution of resolution plans during transition will lead to fresh provisioning

The Reserve Bank of India’s (RBI’s) June 7 circular is turning out to be a concern for state-run banks whose mergers have been announced, given the strict deadlines for the implementation of resolution plans.

This is because a failure to go ahead with the resolution plans within the prescribed period set by the central bank will trigger a cumulative additional provisioning of 35 per cent.

The revised circular on stressed assets (which replaced the earlier February 12, 2018, circular after it was declared ultra vires by the Supreme Court) calls on banks to make additional provisioning in such cases as