1. Bad loan cleanup ordinance: Step in right direction, says Deepak Parekh

Bad loan cleanup ordinance: Step in right direction, says Deepak Parekh

Eminent banker Deepak Parekh said today that the government’s decision to empower the Reserve Bank of India to force lenders into taking hard decisions regarding their outstanding NPAs will go a long way in improving India’s credit ratings.

By: | Published: May 5, 2017 5:13 PM
Now, there are clear directions to defaulting companies and banks about the implications of possible failure in repayment of loans, HDFC Chairman Deepak Parekh said.

Eminent banker Deepak Parekh said today that the government’s decision to empower the Reserve Bank of India to force lenders into taking hard decisions regarding their outstanding NPAs (non performing assets) is a step in the right direction, as other than benefitting the economy, it will also go a long way in improving India’s credit ratings.

“Tackling NPAs is of paramount importance not only for banking but for economy,” Deepak Parekh, chairman of the Housing Development Finance Corp group, said in an interview to ET Now, adding that the rating agencies too have earlier highlighted the issue. He said that now there are clear directions available to defaulting companies, banks and other agencies, about the implications of possible failure in repayment of loans.

The discourse on solving the problem of bad loans spread wide across the banking system in the country recently gained momentum when various government agencies highlighted the issue, which is choking the lenders and is, in turn stifling credit growth. It has now become imperative to tackle record stressed loans of Rs 9.64 lakh crore held by Indian banks as of 31 December 2016, much above 12% of their total loans, as the burden constrains lending and delays private investment.

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Parekh said to ET Now that the RBI now has all the power to push banks to take hard decisions. One of the provisions of the amendment introduced into the Banking Regulation Act, 1949, allows the RBI to let a defaulting company go into insolvency to recover dues.

Among other provisions of the amendment, the RBI, for resolution of stressed assets, will be able to issue directions to banks regarding sale of assets, closure of non-profitable branches, reduction of overhead and business turnaround initiatives. It will also be able to form committees to advise banks on stressed assets.

Now, it is for the individual bank boards to take this issue seriously, Deepak Parekh said, adding that some of the banks may even have to shore up their tier-1 and tier-2 capital. He further said that India cannot have the banks evergreening loans every quarter, and that they need to take a one-time hit, ostensibly on letting go of certain irrecoverable amount.

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