Empowering RBI

“RBI in driver’s seat” (May 8) rightly points out the enhanced role of the Reserve Bank of India RBI in asset quality woes. The RBI has been progressively introducing stiffer methods to improve asset quality but with limited success. The measures introduced so far can improve the quality of standard assets, that is to check future slippages, but resolving the existing huge stock of non-performing assets (NPAs) is always challenging. Borrowers are indifferent to banks’ offer. Banks are unable to agree to deeper haircut due to multiple reasons. Now, the RBI is vested with the onus to guide banks to the goal post. It can show the path by directing banks to form Joint Lenders Forum (JLF) and reach an amicable resolution, but it is difficult to make them do so with concrete end results. The ordinance route has empowered the RBI to flog the banks to reach a solution within a time frame. Looking at the stock of NPAs, the RBI will need a strong team to persuade and monitor the banks. Once banks are made to invoke provisions of Insolvency and Bankruptcy Code - 2016, it will be tougher to follow up its end state. It will be necessary to build the wherewithal to handle the added lines of responsibilities.

More important is to find out ways and means to absorb the sacrifice amount which will be beyond the means of banks. External institutions have to be roped in to reduce the NPA levels using newer methods. Looking at the magnitude of issues involved, it will be very challenging for the RBI and banks to bring delinquent borrowers to book. But the demonstrative impact of the policy move will be very useful to resurrect the ecosystem helpful for banks to take proactive recovery action. Moreover, along with empowerment, it will be necessary to develop compatible infrastructure at the RBI and banks to effectively handle the added responsibilities.

K Srinivasa Rao Noida