Former RBI governor Raghuram Rajan said that bankers were still refraining from taking action against errant borrowers fearing that they would be investigated.
Former RBI governor Raghuram Rajan said that bankers were still refraining from taking action against errant borrowers fearing that they would be investigated.
Rajan, on the sides of his book launch ‘I do What I Do’, said that Non Performing Assets (NPA) issues are far from resolutions with banks failing to take action against the promoters.
Speaking during the promotion of his book ‘I do what I do’ Rajan said, “The role of the regulator is to ensure that once the loan is made if it gets into trouble that the trouble is recognised early.”
Banks and the central government have been trying to resolve the bad debt problem that has crossed over Rs 10 lakh crore for the banking system. In June this year, RBI identified 12 stressed accounts that banks had to refer to the National Company Law Tribunal (NCLT).
“In India, we had a situation where the tools for recovery that the banks had were very limited. Many tools they were putting in place surfaced in company tribunals and got clogged up in the judicial system and weren’t really effective in recovery and as a result the promoter was a king,” he said.
With the latest The Insolvency and Bankruptcy Code, 2016 coming in, there is a change of completing the same.
“The last piece is however needs to be done which is banks are still very reluctant to essentially write down the debt of promoters,” Rajan shared with the gathering, “The promoters may have taken this debt at very rosy times, but over time as the entity or project has got delayed as losses have mounted it’s important to recognise there’s no chance of debt to get paid. Therefore, you have to write it down, which is an incentive for the promoter to stay engaged to push for revival, etc. sometimes, writing down may increase the chance of recovery and it may even increase the value of recovery.”
“Today however, many of our bankers are hesitant to take that final step and write down some of this debt for fear that they may encounter various investigations coming, people asking them why you didn’t do this, if the money didn’t change hands. So we need some protection for the bankers, there’s some legislation underway and trying to create a protection,” opined the former RBI governor.
According to him, if the banks aren’t cleaned up, chances of Indian economy growing further is dimmer.
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