Bad loans issue: Report blames Reserve Bank of India policies

NEW DELHI: A committee of lawmakers thinks the Reserve Bank of India’s (RBI) policies have accentuated the problem of nonperforming assets 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 India’s central bank relax some of these rules, thereby increasing amount at disposal of some state-owned banks to lend by around ₹5 lakh crore, and earning them additional interest income of around ₹45,000 crore. Specifically, the committee has criticised RBI’S revised definition for recognising Non-performing Assets (NPAS) that saw a spike in the bad loans on the books of banks and said this could hit economic growth. The lawmaker who asked not to be identified said the committee will recommend the RBI ease rules. The lawmaker also said the committee believes 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 state owned banks that do not operate overseas at all.

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