More on Sr:-
What are Security Receipts or SRs?
When a bank sells stressed assets to ARC, the ARC pays 15% of the asset value upfront and issues 85% worth of SRs which get recorded in a bank’s B/S as Security Receipt assets. At the time of recovery of assets by the ARC, the bank gets its 85% after deducting its fees etc. While the SRs sit on a bank’s B/S, their value may decrease if the ARC company declares that the asset’s NAV has decreased. So banks have to maintain provisions against SRs.
Before 2017 the provisioning is based on NAV declared by credit ratings, so if the SR is of Rs. 100 and the NAV by an independent credit rating agency is Rs. 80, banks need to create provision of Rs. 20 in the books.
In 2017 RBI came out with new guidelines wherein the banks need to create provision as higher of based on ageing analysis or the difference between SR and NAV declared by credit rating agencies and on the basis of ageing rules so for example if SR is Rs. 100 and NAV by rating agency is Rs. 80 and as per old method it needs to create provision of Rs. 20 but if as per the RBI ageing analysis the provision is Rs. 30 so they need to create a provision as higher of both i.e, Rs. 30.
The bank is following this approach on all the SR issued after 2017 but there was some SR issue before 2017 as well like in 2014, 2015 & 2016. There was no clarity on that weather to create provision on that as well or not.
On 05 Dec 2022 RBI issued an FAQ wherein they mentioned that banks need to crate provisions on retrospective basis i.e, if SR are issued before 2017 then they need to create additional provision on that as well.
In South Indian Bank they had the SR issued prior of 2017 as well so now in Q3 they created the one-time additional provision of 312cr. Wherein they have created 100% provisions on all the SR issued before 2017. As on Dec-22 the outstanding SR in the books are of Rs. 215 cr.
Now if we assume there will be no any collection from these 215 cr as well then the bank will need to create a provision of Rs. 48cr in Q4-FY23 and Rs. 15 cr in FY24.
Disc:- invested.
| Subscribe To Our Free Newsletter |
