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19
April 2018
 |
RBI
(The Total Investment & Insurance Solutions)
Defending
the Reserve Bank of India's (RBI) norms on resolution of banks' non-performing
assets (NPAs), or bad loans, announced in February, RBI Deputy Governor N.S.
Vishwanathan on Wednesday said these are outcome-oriented and provide banks the
flexibility on deciding the contours of resolution.
Delivering
a lecture titled "It is not Business as usual for Lenders and
Borrowers" at the National Institute of Bank Management in Pune, he also
cautioned banks on being overcome by a herd mentality in seeking to grow retail
credit and the personal loan segment as a way out of their problem with
corporate bad loans.
As
per the RBI's revised framework on NPAs, banks are required to classify even a
day's delay in paying loan instalments as a default.
"Some
concerns have been expressed that the 1-day default clause is onerous,"
Vishwanathan said, according to the speech copy uploaded on the RBI website.
"These concerns are not well founded. For cash credit account, the
30-day trigger has been retained. For term loans, where the repayment schedules
are predetermined, borrowers need to and indeed have enough notice to arrange
funds in time. It is a behaviour change in repayment of credit that has to come
about," he said. The Total
Investment & Insurance Solutions
"The
date shows that a large number of borrowers, even some highly rated ones, have
failed on the 1-day default norm. This has got to change. If borrowers fail to
pay on the due date because of a cash flow problem, banks should see that as an
early warning indicator warranting immediate action," he added.
The
RBI official also said the revised norms provide as much flexibility as
possible to lenders and the stressed borrowers so long as a credible resolution
plan is implemented within a specified time frame.
"If lenders and the stressed borrowers are unable to put in place a
credible resolution plan within the timelines, then the structured insolvency
resolution process under the IBC (Insolvency and Bankruptcy Code) should take
over," he said. The Total
Investment & Insurance Solutions
Vishwanathan
cautioned banks that there were risks as well in expanding retail credit, which
needed to be properly assessed, priced and mitigated.
"There appears to be taking hold a herd movement among bankers to
grow retail credit and the personal loan segment. This is not a risk-free
segment and banks should not see it as the grand panacea for their problem
riddled corporate loan book," he said. The Total Investment & Insurance Solutions
The
accumulated NPAs in the Indian banking system have crossed the staggering level
of Rs 9 lakh crore.
The
RBI has decided to do away with the Joint Lenders' Forum (JLF) as an
institutional mechanism for resolution of stressed accounts.
Banks
have represented to the RBI for relaxing the norms issued under the revised
framework. Industry too has requested for relaxation.
According
to the Association of Power Producers (APP) last month, the government proposes
to recommend that the RBI make some relaxation in its norms on NPAs, failing
which up to 70,000 MW of power projects would go under bankruptcy proceedings.The Total Investment & Insurance Solutions
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