Diagnosis meaningless if not carried further: S S Mundra

By: | Published: May 21, 2016 6:11 AM

Reserve Bank of India (RBI) deputy governor SS Mundra said on Friday that banks should not allow any slowdown in the clean-up exercise and must continue to improve their provision coverage ratios.

Reserve Bank of India (RBI) deputy governor SS Mundra said on Friday that banks should not allow any slowdown in the clean-up exercise and must continue to improve their provision coverage ratios.

“Banks should not allow any slowdown in the cleanup exercise which they are doing even if the required classification happens, provision happens. Banks should continue to keep aside the money, keep on improving the provision coverage ratio till it reaches a really strong percentage,” Mundra said.

He pointed out that it may not be needed by the existing rules but banks should do it by their own self discipline and on their own reckoning. “And it has its own benefits.”

The deputy governor was delivering a keynote address at an event held at the Indian Merchants’ Chamber on the topic ‘NPAs: Who took the banks’ money?’

He observed that the way forward is to provide a helping hand to those promoters in cases where external factors were responsible for difficulties in projects. “Any diagnosis is meaningless if you don’t carry it further. I think the way forward would be to extend a helping hand to the promoter where the projects have run into difficulties due to external factors.”

Mundra said people who had committed sins should be punished, but a productive enterprise should not be brought down.

For cases where imprudence is well established, it certainly proves that there is lack of management capabilities, although it may not prove that promoters had any fraudulent intentions, he said. “In such cases, I think removing the management control from them should be a must,” Mundra said.

For cases which pertain to fraudulent intentions and misdemeanours, it has to be a change of ownership and change of management control, he indicated.

Mundra also pointed out that with the corporate loan book going through hard times, simply moving the portfolio to retail may not be a solution for banks as it requires its own kind of expertise.

“Once you want to do retail, you need to have a whole ecosystem, whole backoffice, collection capabilities, data churning capabilities, analysis capabilities. Otherwise you end up with NPAs on the book,” he asserted.

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