RBI governor Urjit Patel rejects easing NPA norms

 RBI governor Urjit Patel rejects easing NPA norms 

The Reserve Bank has ruled out any relaxation in bad loan rules, saying the tough norms will discipline borrowers and prevent banks from pushing distressed loans under the carpet, two senior officials, who did not want to be named, said. This message was conveyed by RBI governor Urjit Patel to parliamentarians in a closed-door meeting held in New Delhi on Tuesday.

The revised rules of February 12 give banks direction on measures they should take once an account shows initial signs of weakness. Banks termed the changes harsh and feared it would lead to a steep rise in the share of bad loans.According to the new rules, banks must work on a resolution plan from day one of a default and relevant plans must be put in place within 180 days.

If they fail to do this the loan has to be referred to the dedicated bankruptcy court. “The RBI is very clear that such measures are needed to clean the banking system and any dispensation could be misused,” said a senior official who did not want to be identified. “The RBI has withdrawn all schemes because they were seen as ways of delaying the recognition of NPA and was resulting in banks restructuring their own books and not that of the borrowers,” he added.

The RBI governor was accompanied by deputy governor N Vishwanathan and executive director Sudarshan Sen. RBI did not respond to an email sent by ET. Under the revised rules, for a resolution plan to be considered valid, it has to be endorsed by all lenders in the consortium and the account can be upgraded only after the borrower repays 20% of the principal. The RBI also withdrew all debt restructuring schemes, such as converting outstanding debt into equity and giving longer tenure loans with a reset clause.

Soon after RBI concluded its meeting with Rajya Sabha members on Tuesday, bank chiefs held a separate meeting with them. During the meeting, lenders sought intervention from the members of the parliament in convincing the banking regulator to relax bad loans rules on stressed assets while terming them to be ‘harsh’ having zero tolerance of bad loans.

Bankers urged they be given a minimum of 30 days to start the resolution of a loan and wanted the government’s help in persuading RBI to relax the rules regarding 100% consent from all borrowers for restructuring a loan within 180 days.

The lenders sought continuation of old debt restructuring schemes for all their accounts where it has been triggered even if the scheme is not fully implemented. The RBI, while withdrawing all the debt recast schemes, said it will be allowed in cases where the scheme is fully implemented and not for cases where it is triggered but not yet applied.

Although the government does not have a direct say on the regulation of banks, particularly those relating to accounting and recognition of bad loans, banks are hoping that they were able to convey their concerns about their precarious positions,” said a bank chief, who did not want to be named.

The share of bad loans of banks has been rising steadily over the past three years touching Rs 9 lakh crore. Many banks expect bad loans to cross Rs 10 lakh crore with the revised RBI rules kicking in. 

The Economic Times, New Delhi, 12th April 2018