RBI chief urges Govt to clean up bad debts in banks within a year

The Pak Banker - - COMPANIES/BOSS -

Re­serve Bank Gov­er­nor Raghu­ram Rajan on Satur­day made a strong case for clean­ing up bad debts of banks and re­struc­ture other pos­si­ble NPAs within a year to put the econ­omy back on track. He also favoured chan­nelis­ing "full sav­ings" of the house­holds into the fi­nan­cial sys­tem so that req­ui­site re­sources for growth are made avail­able.

"In the short term (up to 12 months) there is need to clean up the NPAs and then re­struc­ture other stressed loans so as to put the econ­omy back on the track," Rajan said at the two-day Gyan Sangam here.

To­tal Gross Non Per­form­ing As­sets of pub­lic sec­tor banks stood at over Rs 2.43 lakh crore as on end-Septem­ber 2014. The top 30 NPAs ac­count for Rs 87,368 crore or 35.9 per cent of to­tal gross NPAs of PSBs.

Rajan said the bona fide mis­takes made by the bankers while tak­ing com­mer­cial de­ci­sions should be pro­tected by the gov­ern­ment. "If the of­fi­cers are hauled up for such de­ci­sions this would to lead to de­lay in good de­ci­sions be­cause of avoid­ance of risk," he said.

The gov­er­nor also stated that there was a need for in­ter­na­tion­al­i­sa­tion of the bank­ing sys­tem in the cur­rent global en­vi­ron­ment. "The Cap­i­tal base of the banks may need to be en­hanced," Rajan said while em­pha­sis­ing on the need for con­sol­i­da­tion in own­er­ship, im­prove­ment in gov­er­nance, and en­hance­ment of man­age­ment ca­pa­bil­ity.

With the li­cens­ing of the small banks and the pay­ment banks, there would be new play­ers in the in­dus­try and com­pe­ti­tion amongst the PSBs will also grow to meet th­ese chal­lenges.

"Ac­cord­ingly, PSBs have to de­velop dif­fer­en­ti­ated prod­ucts," Rajan said. Stress­ing on the need for PSBs to re­cruit young tal­ent, train, and re­tain them, Rajan said: "And that the gov­ern­ment needs to have a re- look at the cam­pus re­cruit­ment which at present is banned be­cause of Supreme Court rul­ing."

Fi­nance Sec­re­tary Ra­jiv Mehrishi, raised the ques­tion whether bank na­tion­al­i­sa­tion has been able to achieve the ob­jec­tives of reach­ing out to all peo­ple and ex­pan­sion of credit as nec­es­sary.

He urged that banks need to be healthy to drive 7- 8 per cent growth in GDP. Ad­di­tion­ally, to pro­vide that mag­ni­tude of fi­nanc­ing, the PSBs need to en­hance their cap­i­tal base. Non-Bank­ing pay­ment so­lu­tions like Mo­bile Bank­ing could be used to reach out to poor peo­ple.

"This may help cash­less trans­ac­tions and thus re­duce black money in the sys­tem," Mehrishi said. He fur­ther said the gov­ern­ment may take a relook at the le­gal sys­tem to deal with wil­ful de­fault­ers.

In his ad­dress, Chief Eco­nomic Ad­vi­sor Arvind Subramanian sug­gested ways by which the bank­ing sys­tem can gen­er­ate and ef­fi­ciently al­lo­cate do­mes­tic sav­ings to sus­tain the in­vest­ment rate of 35 per cent of GDP to achieve the growth of 8 per­cent in medium term.

He pro­posed that the PSBs should be dif­fer­en­ti­ated into weak, good and strong cat­e­gories and ac­cord­ingly con­sol­i­da­tion and re­struc­tur­ing mea­sures could be ap­plied to them. "There should be di­ver­si­fi­ca­tion both within and out­side the bank­ing sys­tem. There should be bet­ter bank­ruptcy pro­ce­dures. The cur­rent over­hang of stressed as­sets should be re­solved by dis­tri­bu­tion of the pain be­tween pro­mot­ers, cred­i­tors and tax pay­ers," Subramanian said.

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