RBI for December deadline to recast top 50 bad loans

23/02/2017

MUMBAI: The Reserve Bank of India is proposing its toughest measures yet to recover loans from defaulters by prescribing December deadline for the loan restructuring of top 50 defaulters in a way that the assets turn viable and also in an environment where vigilance departments do not stifle the right economic outcome.
Picking up from where former governor Raghuram Rajan left, deputy governor Viral Acharya proposed setting up two asset management companies, one private and the other quasi with government stakeholding, and two rating agencies for valuation of stressed assets. The rate of bad loans has come to such an alarming level that banks should be shown some ‘tough love’ by barring those non-performers from taking deposits and lending. In some cases, merger of banks should also be considered to reduce dependence on government capital.
“This situation should be a cause for concern to all of us,” Deputy Governor Acharya told an audience at a conference organised by the Indian Banks Association. “It is reminiscent of weak banks and stagnating growth witnessed by Japan in the 1990s, with repercussions to date, and by Italy since 2010. Japan has experienced, and Italy, is in my opinion experiencing, a lost decade. I believe we are at crossroads and have an important choice to make.”
Acharya has been an advocate of prudent practices and a quick clean-up of bad loans mess.
He has been an advocate of bad bank, but has since abandoned the phrase since it conveys a different message, though the idea remains.
“I have previously used the phrase “bad bank” for such ideas, over time I have come to dislike the title,” he said. “A ‘bad bank’ conveys the impression that this entity is to operate as a bank but has bad assets to start with. In fact, the idea is not to operate these entities as banks at all. Resolution agencies set up as banks that originate or guarantee lending have ended up being future reckless lenders.”

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