Detach Morality from NPA Clean-Up: Guv
Mumbai: Reserve Bank of India Governor Raghuram Rajan has reiterated that it is dangerous to roll all loan defaults into events of poor moral values and there is a need to distinguish between the two. “What’s happening on the NPA front...this becomes loaded with a lot of morality, are these good people, bad people. I think one should take out morality from the NPA clean-up,” PTI quoted him as saying at the Inaugural Kotak Family Distinguished Lecture at Columbia Law School here on Monday.
While the RBI governor is driving the banking system to clean up the bad loans problems by March 2017, he has been against clubbing all loan defaults as a deliberate attempt to cheat the banking system. When the SC was questioning the regulator about disclosing names of defaulters he had said it may not be the right thing to do. “It may have become non-performing simply because you had terrible luck or somebody else’s fault. Somebody cancelled your licences, didn’t give you approvals on time, your partner didn’t perform. There could be all sorts of reasons why companies get into trouble.”
If companies get into trouble, the loan becomes a non-performing asset and “we very much want these assets to be back on track,” the PTI report said.
“It is a completely separate issue of who to blame and whether there is criminal liability involved. In some fraction of the cases there may be criminal liability involved. That should be separated from the whole issue of putting the assets back on track,” he said. Asserting that the “asset is not a criminal”, he said the asset can produce value and can function. “It should be allowed to produce value even while there is a separate case going on if there was criminal activity involved,” he said.
Rajan emphasised that the government has said very clearly it will not interfere in the process of granting loans and “I think that is a very important development. The next stage has been on trying to improve the administrative structure in the banks”.
Rajan said last part of the posttantrum stabilisation agenda has been to clean up stressed assets in banking sector to ensure banks have room to lend again. “We do want to have our banks get their money back. For that we need a proper bankruptcy system, a court system that functions in finite time and we didn’t have that in the past,” he said.
He expressed hope that “there is reasonable chance” that the bankruptcy code bill will be passed soon and that will ensure a system “where you can renegotiate outside of bankruptcy but the shadow of bankruptcy keeps you from getting away with too much either on the banking side or the promoter side”.