Commenting on the ‘perceived delay’ in taking action against rising bad loans, Reserve Bank of India governor Raghuram Rajan on Saturday said the central bank accorded priority to protecting jobs by trying to put stressed assets back into health, while investigative agencies deal with cases of malfeasance.
“I think we have it (NPAs) contained,” Rajan said, speaking at a memorial lecture in the capital. He said early enactment of the bankruptcy code would give a ‘serious’ instrument in the hands of bankers, who till now lacked any such law to recover their loans in a meaningful way.
After giving due consideration to representations from banks, business promoters and the government to give sometime to deal with the bad loan problem and not ‘precipitate’ the situation, the RBI asked all banks to start recognising all stressed assets from October-December quarter. The move led to a spurt in gross NPAs in the public sector banks, which control 70% of banking assets in the country, by about Rs 1 lakh crore to about Rs 4 lakh crore at end-December 2015, from Rs 3 lakh crore in September-end. “But I also want workers in plants today, who are in danger of losing their jobs, to have that job, to be able to produce, because non-functional assets are in nobody’s interest, certainly not in the nation’s,” he said.
Citing the US, which has a well functioning bankruptcy code that acts as a deterrent against wilful defaulters, Rajan said promoters in India didn’t care to pay back in many cases, taking advantage of lengthy legal battles that can stretch up to to 15 years.
“With the bankruptcy code, even though it will take some time to set up the system, we can move faster (in resolution of bad loans),” he said. Pointing out that the RBI has been creating a structure that will help out-of-court resolutions, he said, “Assets are slowly coming back on track. Assets are being sold to pay down the debt. So I think we will limit the size of the problem.”
He noted that in every crisis, there is always an issue of “should I precipitate problems further by recognising the problems and dealing with them now or should I wait a week more, a month more, and maybe things will resolve themselves”. He said the RBI bit the bullet at an appropriate time and it has been very focused in dealing with the NPA problem.
Separately, on imposition of anti-dumping duty, he cautioned that there was a risk of re-introducing practices
that India had abandoned in the past.