RBI to banks: Don’t hide bad loan issues, resolve them
Mumbai: The Reserve Bank of India (RBI) has decided not to show any further regulatory tolerance to banks which are grappling with bad loans, but promised to find ways to resolve the issues related to dodgy loans and improve credit flow.
“Creeping forbearance in the treatment of bank losses is untenable and costly for the rest of the economy,“ Urjit Patel, RBI governor, said while speaking to the media after announcing the monetary policy.
At the same time, he said that soon RBI would announce measures for banks to deal with stressed assets and weak balance sheets.
The central bank also stated that new measures will not be aimed at brushing aside the bad loans. SS Mundra, deputy governor of the RBI, said that the central bank has introduced many instruments to resolve bad loans and they can be reassessed.
“But the message that we are trying to give is that all these instru ments are meant for resolution in a serious sense and not for postponement of the problem and I think that would be the basic focus, going forward.“
Comments from Patel and Mundra come at a time when banks are clamouring for bad loan provisions since they are eating into their profits. Stressed loans have emerged as one of the main concerns for banks since they constitute almost 20% of the total loan book. Mundra said that there's no one size-fits-all formula, while adding that various options are being considered to resolve the sticky loans issue. He indicated that options include ways to improve the implementation of joint lenders forum and enhance the role of oversight committee that currently looks at restructured stressed loans.
Patel said that having completed the asset quality review of banks, and with Insolvency and Bankruptcy Code in place, the RBI's oversight committee is preparing for the next steps on resolution of banks' stressed assets.
“This will be undertaken concomitantly with resolution of the weakest bank balance sheets under the aegis of a revised Prompt Corrective Action (PCA) framework and our new enforcement department that has started its work this week,“ said Patel.
The RBI said that the revised norms prompt corrective action which is triggered when banks show initial signs of weakness -will also include the extent to which banks leverage their balance sheet.
“Creeping forbearance in the treatment of bank losses is untenable and costly for the rest of the economy,“ Urjit Patel, RBI governor, said while speaking to the media after announcing the monetary policy.
At the same time, he said that soon RBI would announce measures for banks to deal with stressed assets and weak balance sheets.
The central bank also stated that new measures will not be aimed at brushing aside the bad loans. SS Mundra, deputy governor of the RBI, said that the central bank has introduced many instruments to resolve bad loans and they can be reassessed.
“But the message that we are trying to give is that all these instru ments are meant for resolution in a serious sense and not for postponement of the problem and I think that would be the basic focus, going forward.“
Comments from Patel and Mundra come at a time when banks are clamouring for bad loan provisions since they are eating into their profits. Stressed loans have emerged as one of the main concerns for banks since they constitute almost 20% of the total loan book. Mundra said that there's no one size-fits-all formula, while adding that various options are being considered to resolve the sticky loans issue. He indicated that options include ways to improve the implementation of joint lenders forum and enhance the role of oversight committee that currently looks at restructured stressed loans.
Patel said that having completed the asset quality review of banks, and with Insolvency and Bankruptcy Code in place, the RBI's oversight committee is preparing for the next steps on resolution of banks' stressed assets.
“This will be undertaken concomitantly with resolution of the weakest bank balance sheets under the aegis of a revised Prompt Corrective Action (PCA) framework and our new enforcement department that has started its work this week,“ said Patel.
The RBI said that the revised norms prompt corrective action which is triggered when banks show initial signs of weakness -will also include the extent to which banks leverage their balance sheet.
