The Reserve Bank of India’s (RBI) decision on the one-time restructuring of stressed advances may delay bad loan recognition, Fitch Ratings said on Monday.

Last week, the RBI had allowed banks to restructure loans facing stress because of the Covid-19 crisis.

Fitch said there would now be more uncertainty over the asset quality of banks.

The recast opens a window for banks to build capital buffers while putting off the full recognition of the pandemic’s impact on loan portfolios. The mechanism is reminiscent of a strategy adopted over 2010-2016 that delayed and exacerbated problems for the banks, the ratings agency said.

Fitch pointed out that the scheme may be designed to give banks more time to raise capital to address the impact of the crisis on loan portfolios.

The ratings agency said PSU banks may find it difficult to raise funds as investors may be reluctant to participate in the sales of stakes in state-owned lenders until the impact of the pandemic on their balance sheets is clear.

It also felt that delaying the recognition of problems in the banking sector could provide some short-term support to economic growth by stimulating credit issuance.

“However, many state banks may remain reluctant to lend to all but the most creditworthy borrowers in the near term, as their overall weak capital position remains unsupportive of growth — even with impaired loans permitted to be classified as ‘standard’ after rescheduling,” the rating agency noted.

Besides, the attempts to restructure debts between 2010 and 2016 were characterised by poor implementation and weak monitoring. The central bank has, however, looked to address this concern by tightening supervision through the Kamath Committee, which will vet all restructuring plans involving creditors with more than Rs 1,500 crore of debt.