Skip to main content

Banks Dithering on Cleaning Bad Loans, says Rai

By
Managements evading hard decisions, bank consolidation depends on resolving NPAs: Rai
Banks Board Bureau chief Vinod Rai said little progress has been made on resolving bad loans as managements are reluctant to take hard decisions on recasting debt despite concerns that the rising burden of non-performing assets (NPAs) is holding back the economy.
“We are not making much progress and I don't think we have anybody else to blame but the banks themselves,“ Rai told ET, adding that the government and RBI had created a conducive environment for lenders to clean up their books.
The veteran bureaucrat, who was roped in by the government to oversee a planned transformation of state-owned banks, added that he doesn't see any prospects for consolidation until bad loans are sorted out. Rai, whose mandate is likely to get broader, said he now sees signs of recovery in the economy . But banks need to push sluggish credit expansion to spark private investment, which has been lagging behind, in order to boost growth to required levels.
The lack of enthusiasm on the part of bank executives to resolve bad debts stems from fear that they may subsequently be accused of favouring big corporate borrowers and face corruption charges. But those concerns have been addressed, he said. “The critical issue that needs to be asked is in FY16-17, how many bad loans have you resolved?“ Rai said. BBB has roped in two of the country's top anti-corruption authorities -the Central Vigilance Commission and Central Bureau of Investigation -to ease worries about undue scrutiny over rescheduling bad loans, Rai said. A twomember overseeing committee (OC) to help banks deal with bad loans was set up after consultations with the Reserve Bank of India and the agencies mentioned above. It includes former State Bank of India chairman Janki Ballabh and former chief vigilance commissioner Pradeep Kumar.
“I don't think at any point of time before this, the government or RBI had made it so simple for them to settle. In my interactions with RBI governor (Urjit Patel), I am assured that RBI is totally supportive,“ he said, adding that the regulator has also agreed to tweak regulations wherever there are genuine concerns. “But the point is RBI is not going to lay out the entire red carpet and then say you settle.“
The newly announced bankruptcy laws will be ineffective as long as banks are not prepared to make decisions on bad loans, Rai said, adding that BBB was only an advisory body . Gross NPAs of public sector banks surged to `4.76 lakh crore in FY16 from `2.67 lakh crore in the year before. As many as 13 of 21 public sector banks -State Bank of India and its associates were counted as one entity -posted losses in FY16 and half of them could do so again this fiscal, Crisil said in a note on Wednesday .
Rai said that in the public sector processes sometimes take precedence over outcomes but banks should be able to get things moving by following the resolution procedure and presenting cases to their boards for action, expres sing frustration that this wasn't happening. “Somebody has to talk to them and tell them you are here to settle, resolve issues, and kick start lending process,“ he noted.
Banks should make use of the joint lenders forum (JLF), he said. “I do not see a CBI prosecuting the boards of seven banks,“ he said.The JLF refers to a grouping of key lenders to a borrower who come together to negotiate jointly.
BAD BANK ET reported earlier this week that the government was working on a plan to address bad loans and one of the options was a professionally run bad bank.
Rai isn't convinced that's a good idea, going by the experience of the dozen or so asset reconstruction companies operating in the country. “How many loans have they resolved over the last decade?“ he said. “I am convinced in my mind that public sector can work, it has delivered and we can make it still deliver.“
Rai said recent reports about consolidation may have been based on comments that were general in nature, rather than anything specific. “Bank consolidation is very much on agenda but it is not the right time,“ Rai said.“When going for bank consolidation, you take two partners, and look at what synergy they have.But when you have stress on the balance sheet, you don't know the real size of the balance sheet.“
The Economic Times New Delhi,13th October 2016

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more