As of now, the moment a loan extended to real estate, capital market or personal loan segment is restructured; the lender has to classify it as a bad loan. At the same time, however, one-time restructuring of loans to any other sector such as steel, textile or cement would not result in the loans being classified as non-performing assets.

In a recent meeting with RBI governor D Subbarao, CEOs of many large banks urged the regulator to relax these restructuring norms. They pointed out that a number of real estate companies have been complaining about the liquidity crunch and have approached lenders to rollover the loan.

However, there is a resistance among banks to give them an additional line of credit or reschedule their loans on the ground that this will add to their pool of NPAs.

Loan restructuring allows banks not to treat the account as an NPA. Banks often indulge in this exercise whenever they sense that the borrower is in stress and the account may turn into an NPA or bad loan.

It enables them to declare a lower NPA ratio — the percentage of sticky loans to total loans — a dead-weight on their books. Also, once an account is deemed as an NPA, the bank has to make some provisions, which affect its bottom-line.

If a real estate company fails to repay loans on a due date, the bank will either accept it as an NPA and restructure the loan or resort to legal action.

Some banks have already come to terms with this and have begun restructuring their real estate loans while a number of banks are looking at ways to reschedule loans to this sector without showing it as NPAs.

Meanwhile, banks have also urged RBI to relax norms on restructuring of loans to manufacturing companies. As of now, when a performing loan to a manufacturing company is restructured for the first time, it can be treated as a standard asset.

However, if the loan to the same company is restructured again, it has to be treated as sub-standard. Banks have urged RBI that given the global turmoil and the slowdown in the economy, banks should be given a second chance to restructure the loan of manufacturing companies while allowing them to classify the same as standard assets.