New Delhi: A Parliamentary committee has questioned the Reserve Bank of India (RBI) for failing to take pre-emptive action in checking bad loans in the banking system prior to the Asset Quality Review undertaken in December 2015.
According to sources familiar with the report of the Standing Committee on Finance, the RBI needs to find out why the early signals of stressed accounts were not captured before the AQR. The report was adopted by the committee headed by senior Congress leader M Veerappa Moily on Monday, and was likely to be placed before Parliament in the Winter Session.
The panel, which includes former prime minister Manmohan Singh as a member, wanted to know the reasons of ever-greening of stressed accounts through various restructuring schemes of the RBI.
The issue of rising non-performing assets (NPAs) or bad loans was a legacy issue, and the RBI’s role had not been up to the mark, sources said. NPAs in public sector banks increased by around Rs 6.2 lakh crore between March 2015 and March 2018, leading to a substantial provisioning of Rs 5.1 lakh crore, sources said quoting the report.
The report also flagged the issue of low credit to GDP ratio in India, which was 54.5% as on December 2017, against 208.7% for China, 170.5% for the UK and 152.2% for the USA. “The RBI should examine the asset to capital leverage ratio in other countries vis-à-vis India and, keeping in view India’s relatively low credit-to-GDP ratio, identify ways to improve the capital base of banks without constraining growth of, and equitable access to MSME, agriculture and retail segments,” sources said quoting the report.
The panel also highlighted various measures that led to transformative change in creditor-debtor relationship and responsible banking, including transparent recognition of NPAs post AQR, enhanced provisioning, massive recapitalisation, enactment of the Insolvency and Bankruptcy Code (IBC), debarment of connected parties and examining of all NPA accounts exceeding Rs 50 crore from the angle of possible fraud. Besides, steps such as monitoring through specialised agencies in accounts above Rs 250 crore at PSBs, initiating the setting up of the National Financial Reporting Authority and enactment of the Fugitive Offenders Act, 2018 also resulted in responsible banking.