Provisioning under the Insolvency and Bankruptcy Code (IBC) were not unusually high and would improve long term credit quality of banks said NS Vishwanathan, Deputy Governor, Reserve Bank of India (RBI) said in Kolkata today.
The Reserve Bank of India (RBI) has directed banks to set aside 50 per cent cover in the form of provisions for the cases referred for insolvency proceedings at the National Company Law Tribunal (NCLT.
"A strong insolvency code would improve the long term credit quality of banks, and will place banks in a firm footing. Also the provision only meant expected loss, and banks would write back in case of recovery," Vishwanathan delivering a speech at Merchant's Chamber of Calcutta today.
"The S4A envisaged the minimum sustainable debt to be 50 per cent. It is, therefore, only logical that provisions made for cases referred in the IBC be least 50 per cent" he added.
Calling the issue of stressed asset as a "serious concern" in the banking sector, Vishwanathan said sub-optimal restructuring would only attenuate the problems faced by banks.
On the issue of having linking bank lending rates to a market benchmark for better monetary rate transmission, Vishwanathan said this would enable transparency in the system.
"With MCLR also there are certain problems, and therefore the need for having an external benchmark for deciding interest rates," he said, adding "Days of regulating interest rates are over".
