RBI is monitoring the stressed sectors in the economy such as power and steel, urging banks and company promoters to ensure deep and appropriate restructuring of viable projects so that they are put back on track.
The Reserve Bank of India (RBI) has warned banks against under-declaring non-performing assets (NPAs) and on ever-greening of accounts to prevent them from slipping into default.
RBI governor Raghuram Rajan said, "We are increasingly turning towards taking action on such divergences. So it is not that these things get done with impunity. We ensure that there are a number of checks and balances in trying to ensure that the NPAs announced by banks convey the true and fair picture. We also supervise banks and go into their portfolios to see whether they have declared the NPAs they should and we examine divergences and bank managements are hauled up where there is divergence."
RBI is monitoring the stressed sectors in the economy such as power and steel, urging banks and company promoters to ensure deep and appropriate restructuring of viable projects so that they are put back on track.
"The thrust of the restructuring exercise should be to help projects come back on stream. I think that is what we need for the continuing health of not just the banking system but the economy," said Rajan.
RBI has been taking a number of steps like asking banks to constitute joint lenders forum and strategic debt restructuring for revitalising distressed assets in the economy to build a consensus among the lenders and to chalk out a strategy to on how to put a project back on track in a significant way.
"This requires efforts by the banker, promoter, state governments, central government, regulators (electricity tariff, etc) for them (the actions) to really work," Rajan said.
RBI, he said, is much less keen on forbearance going forward, and has been asking banks to face the reality, you need to do what you need to do take the medicine, pushing it into the future is going to just create bigger problems in the future,'' the governor said.
Referring to the thin line between forbearance and flexibility, Rajan said the RBI is for flexibility when it comes to restructuring. For example, sometimes there is only a little more to develop in a project and then it can start producing revenues. In that situation, should a bank lend into that project, even if it is a NPA, in order to complete it and put it back on track.
A senior banker on condition of anonymity said, "Some banks still have to come around to getting their systems computerised so that the system is able to automatically identify the NPA cases and take corrective action."
In the first quarter ended June 30, Bank of India saw an 84% drop in net profit while Dena Bank reported 81% drop and Punjab National Bank, 49% as money had to be set aside for bad loans.
"We have said no problem in lending to a project which is a non-performing asset so long as it is meant not to evergreen but to put the project back on track and get it going," Rajan said.
Pointing out that the 5/25 rule, whereby 25-year loans to projects in infrastructure/core industries come with refinancing option at 5-year intervals, is sometimes derided, the governor said the RBI is actually examining such cases to make sure it is used for the right purpose. "The point is not so much again to postpone the problems into the future, but to postpone repayment way into the future. In fact, we are insisting that there should not be significant moratoria on repayment in the 5/25 rule."
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