Banks are to blame for the condition they are in
Itís unbelievable that banks are restructuring corporate loans at a run rate of almost R4,000 crore a month, but the damage has been done. All they can do now is to make sure itís not them alone who are bearing the pain. In this context, a core group of senior bankers has decided that any recast will require the promoters concerned to contribute their share of the load; so among other things, they must cough up a higher (25%) contribution of the diminution in the fair value of the account, and must also furnish unconditional personal guarantees.
RBIís new norms on restructuringóbased on the recommendations of the Mahapatra Committeeóexpected in January 2013, might be more or less on the same lines. In the past though, the central bank has been a bit too lenient though of course it was the bankers who needed to have been more tough given theyíre the ones who need to answer shareholders. Itís been disconcerting to see them lend large sums to promoters like Vijay Mallya and go to the extent of converting a share of the loans into equity, without even asking for enough of a say in the affairs of Kingfisher Airlines. RBI might want to relook the loan classification rules to make them tighter and ensure adequate provisioning. As it is, agencies like Moodyís are convinced that the asset quality of Indian banks is set to worsen and more important, that the provisions for such potential slippages are inadequate. However, it is in the prevention that the solution lies; banks need to arm themselves with better credit appraisal skills and a better understanding of project risks given that exposures to single ventures are becoming larger. With capital not easy to come by, banks would well to use it efficiently.