Pre-empting stress: RBI to offer banks sops for moving fast

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Mumbai | Published: March 14, 2015 12:15:36 AM

Though the details of incentives were not available, it is understood the RBI is concerned at the inordinate delays in CAP implementation

The Reserve Bank of India (RBI) is looking to incentivise banks to make them more proactive in forming joint lenders’ forums (JLFs) and implement corrective action plans (CAP), sources said.

The central bank feels that banks need to be faster in pre-empting stress. “Even though banks decide on a CAP, they are unable to implement it as many lenders in the consortium do not get necessary approvals from their boards,” said a source.

Though details of how banks are going to be incentivised were not available immediately, it is understood that the central bank is much concerned about the inordinate delays in CAP implementation.

RBI mandates that banks have to arrive at a CAP within 45 days from the formation of a JLF. Banks are required to form a JLF when repayment in an account is overdue by 61 days. Such an account is called a special mention account (SMA-2). However, bankers pointed out that since bank boards do not meet very often and it takes time to prepare the CAP report to submit to the board, the entire process gets delayed.

In December, SBI chairman Arundhati Bhattacharya had said that banks are, at times, unable to convince their boards that the decision taken at a JLF meeting is the right way forward. “It is about the board being convinced that this is the right way and, then, taking a view based on the risk appetite,” she said.

For large banks like Bank of Baroda and Punjab National Bank, the boards meet once a month. However, the frequency also depends on the amount of new business that the bank has generated during the period and needs board approval.

According to a senior banker at a public sector bank, the time to arrive at a CAP, though revised to 45 days from 30 days earlier, is insufficient as every bank has to prepare a detailed report on the JLF proposal and submit it to the board.

“Bank boards do not always agree to what has been agreed upon by the lenders’ forum and it takes longer to convince the merit of the proposal to the board,” he had told FE. Last year, RBI had asked banks to classify loans according to its repayment overdues. Owing to that, JLFs were formed to find CAP for stressed loans.

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