Nifty99000 100%

Sensex99000 100%

Article rating: 3.5
Article rating: No rating
Article rating: No rating
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
Article rating: No rating
RSS

News

RBI defends new NPA norms, says they are outcome-oriented

Author: IANS/Thursday, April 19, 2018/Categories: Banking & Financial Services

RBI defends new NPA norms, says they are outcome-oriented

Mumbai, April 18 - 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 April 18 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 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. 

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 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.

Print Rate this article:
No rating

Number of views (96)/Comments (0)

Kavita Giridhar Mallya

IANS

Other posts by IANS
Contact author

Leave a comment

Name:
Email:
Comment:
Add comment

Name:
Email:
Subject:
Message:
x

Videos

Ask the Finapolis.

I'm not a robot
 
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
 
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest
 
 

Categories

Disclaimer

The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free