Talwar was delivering the inaugural address at the first ever finance seminar of the South Asian Association for Regional Cooperation (Saarc) countries organised by the RBI on the `emerging trends in supervision' here on Wednesday.

Talwar said a large quantum of the non-performing credit can be termed as legacy NPAs acquired before the introduction of prudential norms. "It is worth mentioning that the incremental NPAs in subsequent years have been at much lower levels," he said. NPAs of the Indian banking system have already been provided for more than 50 per cent which is often ignored by international agencies whileevaluating the NPA status of the domestic system, he explained. According to Talwar, the efforts of the RBI in strengthening the prudential regulations and supervision system had helped in sustaining the health of the banking system, enabling it to withstand the contagion effect of the east Asian syndrome.

Talwar said that there was a lot of pressure to reduce the asset clarification norms to one quarter in respect of past due loans. "We have taken the view that international practices should not be merely mimicked but should be carefully evaluated and applied to a country's specific situation keeping in view the support systems," he said. In countries like India, the trade and commerce cycle combined with payment settlement systems extends beyond a quarter. Unless the underlying commercial and payment systems move towards faster settlement of trade transactions, we do not see any immediate compulsion to shift to a norm for asset classification in one quarter in respect of past dues, he said.

Commentingon the Y2K problem which is being pursued by the RBI more as a business risk than a technology problem, Talwar said a target date of December 1998 was fixed for ensuring Y2K compliance and the banks may be subjected to penal measures in case of persistant non-compliance beyond March 1999, he said. A high powered working group in RBI under the chairmanship of the deputy governor will review the progress made in compliance at regular intervals.