RBI governor Raghuram Rajan said the idea behind the new norms was to a have a framework on how the central bank can restore health to the banking system’s asset in an effective way.
The Reserve Bank of India (RBI) on Friday said it is looking at how the banks are using the “various new powers” given to them in order to accelerate the process of recovery of bad assets, and that the central bank is having “ongoing dialogues” with the lenders in this regard.
“We have spent much of the last few quarters creating a variety of bank powers to deal with stressed assets. There is a whole lot of ways by which banks can essentially deal with stressed assets. Having given those powers, we are now looking at how those powers are implemented,” RBI governor Raghuram Rajan told reporters.
Asked about the growing allegations that some of the banks are using the new measures like strategic debt
restructuring (SDR) to camouflage their stressed loans and delay provisions, Rajan said.
“The idea being that these are meant not so much to postpone the day of reckoning, but to actually deal with the stressed asset in an effective way. And as we learn about the way these are being used, obviously we have a dialogue with the banks. That dialogue is ongoing.”
The SDR helps the lenders swap unpaid debt for majority control in troubled companies. And the norm allows the banks to classify the debt in the process as “standard”, without extra provisions or writedowns, for 18 months.
The governor said the idea behind the new norms was to a have a framework on how the central bank can restore health to the banking system’s asset in an effective way. “We hope that by March, 2017 the entire process will be complete,” he informed.