Guwahati, March 30, 2018

Assam unit of All India Bank Officers' confederation (AIBOC) has condemned the recently implemented Income Recognition and Asset Classification (IRAC) norms for banks and demanded its immediate withdrawal.

Considering the impending NPA burden on the economy and its impact on credit growth- already showing signs of sluggishness across sectors- the IRAC must be rolled back, said the AIBOC.

“From 180 days earlier, the NPA classification has been changed to 30 days and for no scientific reason. Under the new norms, once a borrower is unable to pay interest for more than 180 days his account is to be regarded as non-performing and the new rule will deny him further credit,” questioned AIBOC.

With banks handling over 60 percent of national financial savings, the body asks: "Where else will the needy businessmen turn for funds?"

It points to the fact that the Reserve Bank of India (RBI) has been changing NPA norms periodically.

"From the incurred loss model (actual), we moved over to expected loss model (projection). We have been forced to switch over to this model by international agencies, more aggressively after the US financial crisis, even though Indian banks were not majorly affected during the infamous crisis of 2008," notes the AIBOC.

It adds: "These asset classification norms were not based on Indian conditions but based on US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). As such it is not suitable for Indian economic environment as well.”

AIBOC added that the new IRAC norms brought in by RBI is only going to increase the NPA burden and provisions. Public sector banks, along with most private banks, are expected to make losses due to the revised norms. The net loss to the banking system is expected to stand at Rs 1 lakh crore which will lead to a financial crisis- something the country can not afford.

[The Economic Times]