Report blames RBI for bad loans
A committee of lawmakers thinks the Reserve Bank of India’s (RBI) policies have accentuated the problem of nonperforming assets (NPAs) of state-owned banks, and reduced amount at their disposal to lend; that banks do not have what it takes to fund long-gestation projects; and that it is important to remove the environment of fear in which bankers operate today, worrying that even a legitimate loan approval could engender an investigation.
According to a senior lawmaker who spoke on condition of anonymity, the committee is likely to recommend in its report that RBI relax some of these rules, thereby increasing the amount at the disposal of some state-owned banks to lend around ₹5 lakh crore, and earning them additional interest income of around ₹45,000 crore.
The committee has criticised RBI’s revised definition for recognising NPAs that saw a spike in the bad loans and said this could hit economic growth.
The lawmaker also said that the committee believes that RBI’s requirements of the so-called Capital to Risk Weighted Assets Ratio (the extent to which a bank’s capital can cover its loans, adjusted for risk) is far too stringent, especially for some stateowned banks that do not operate overseas at all. The new International Finance Reporting Standards place a further restriction on banks in this context, the lawmaker said, and the committee is hoping RBI will defer this.
Abhizer Diwanji, head of financial services and restructuring with Ernst & Young, however, felt that such measures will lead to a poorer rating for banks and perceived to be more risk prone. “Irrespective of the international exposure of our banks, the CRAR should be kept high as they face certain other risks. Also, banks such as SBI and Bank of Baroda have a lot of international exposure even if it forms a small part of their balance sheet.”
The report of the committee, to be submitted by the end of this month, is likely to suggest that RBI ensure that there is no atmosphere of anxiety and uncertainty among the bankers and that the regulator itself avoid knee-jerk reactions. The lawmaker added that the committee believes that one such step was the halting of letters of undertaking in the aftermath of the fraud perpetrated by jewellers Mehul Choksi and Nirav Modi’s who misused this instrument .
The rising NPAs of banks have escalated to a major political row between the ruling NDA and the Opposition. While the government blames the previous regime for giving loans out of extraneous considerations, the Opposition has slammed the NDA of financial mismanagement. The committee also plans to ask the government to see if RBI needs more power as a regulator. The lawmaker added that committee will recommend that the National Company Law Tribunal be strengthened so that it can meet its workload. The lawmaker added that while it is aware of the situation in state-owned banks, it would not like the current crisis to lead to any opportunity to privatise some of these banks.
NEW DELHI: