‘Delhi will not interfere in Mumbai’s decisions’
The finance ministry’s principal economic advisor, SANJEEV SANYAL , played a key role in helping draft the new Ordinance to deal with nearly ~7 lakh crore worth of NPAs. In an exclusive interaction with ARUP ROYCHOUDHURY, Sanyal said the RBI now had the tools to break the deadlock in terms of new lending activity. He also said Delhi (the central government) would in no way interfere in the decisions made in Mumbai (the RBI and banks). Edited excerpts: How will the Banking Regulation Ordinance help in dealing with NPAs in the banking system? To what extent do you expect the RBI to instruct banks to start bankruptcy proceedings on defaulting companies?
The RBI now has the tools to be able to take a targeted approach and deal with the non-performing assets that can be resolved quickly. It can break the deadlock and get the banking system functioning again. As for the insolvency proceedings, the RBI will have to carry out that exercise.
How is the new framework different from the existing provisions, especially with regard to oversight committees?
The oversight committee (OC) can use its powers to do a few things. One is stop ‘free-riding’ by lenders who didn’t participate. Then, once the OC has put a stamp on a certain resolution, it will be able to get rid of the old problem — that the bankers were afraid there might be investigations and other things against them.
What about criticism that through these amendments to the Banking Regulation Act, the central government will interfere in banks’ business decisions? The whole process will be carried out in Mumbai and not in Delhi. By this Ordinance, the RBI has now been empowered and given tools and powers to be able to resolve the matter at their end. This will be done on a commercial basis, in Mumbai. Delhi will not play any direct role in it. Of course, the finance ministry and the government in general will provide whatever support is necessary from this end. Which of the bad assets can be put on the block now? That the Reserve Bank of India will have to carry out. It has a list which it will come out with. How is this approach, through an Ordinance, different from the concept of a state-owned ‘bad bank’, as was mooted by the chief economic advisor? The bad bank approach is a different approach. We thought that bad bank in itself is a warehouse. It is not a resolution mechanism. It can be used but we took the opinion and realised that this would be faster and more efficient. In some cases, the value of the assets is lower than the dues to the lenders, what about those cases? What about decisions on haircuts? All of those things will be worked out by the Reserve Bank through the oversight committees. This will not to come back to finance ministry. Again, these are all commercial decisions for banks to decide