The Madras High Court has granted four weeks’ time for Reserve Bank of India to file its response to a public interest litigation petition seeking constitution of an expert committee to take a relook at the Income Recognition and Asset Classification (IRAC) norms in force and advise a completely new set of norms suitable to the Indian economy.
Justices M.M. Sundresh and R. Hemalatha passed the order on the petition filed by R.K. Rajaa, proprietor of chappatikings.com, through his counsel M.R. Venkatesh. When the case was listed for admission, RBI counsel Chevanan Mohan questioned its maintainability and sought time to file a counter since the petitioner’s affidavit ran to 109 pages.
According to the litigant, the norms in force do not provide adequate opportunity to businesses to safeguard themselves from slipping into the category of non performing assets (NPA) or to recover from such situations. He claimed that it was because of RBI’s blind adherence to international policies without taking into account domestic ground realities.
“The RBI’s NPA norms are not in the interest of Indian economy as the norms fixed by an international organisation has been blindly applied in the country without considering the nature of industries and the geographies of the country. The present NPA norms have created an artificial sickness in the banking system and has resulted in genocide of entrepreneurial spirit,” he claimed.
The litigant accused RBI of having fixed a uniform 90-day gestation/payback period for all industries without considering the working capital cycle of each industry and their different geographic locations. Such norms prevent businesses from obtaining institutional finance from the banking system and lead them to non institutional finance on payment of usurious rates, he said.
Consequently, banks reduce lending because of fall in revenue and end up reducing interest to depositors. “The interest rates in India have come down from 8% in 2001 to 4% in 2020. India’s share of the world economy was 24.4% in 1700. By 1950, it came down to 4.2% and today it is just 4.5% meaning other countries have overtaken India though they started late,” his affidavit read.
Mr. Rajaa went on to state: “India has surrendered to the mantra of globalisation for at least 20 years now. Yet, neither have we globalised ourselves completely nor has the national GDP per capita reached global levels. The income disparities have only increased. Key operational banking reforms are the need of the hour for reviving developmental banking.”