Freeze asset quality norms to help borrowers, says RBI director Marathe

In a letter to PM Narendra Modi, RBI director said the lockdown, imposed to contain spread of Covid-19, and the earlier slowdown have disrupted operations of manufacturing units

Norms for asset quality and provisioning should be kept on hold for the last financial year to support banks as they the help the country during a three-week lockdown for the coronavirus, Reserve Bank of India director Satish Marathe has said.

Marathe, in a letter to Prime Minister Narendra Modi, said the lockdown and the economic slowdown before it have disrupted manufacturing units and crippled supply chains of all businesses.

As a part of package to revive businesses, rules relating to downgrading of borrower accounts, reporting to credit information companies should be suspended for FY20, said Marathe as industries and businesses in India are primarily financed by bank credit unlike in developed countries where it is supported by the entrepreneurs.

Banks should be allowed to reschedule all borrowal accounts, wherever necessary, without the same being downgraded, the RBI director said, adding banking entities should get freedom to fund accrued/unpaid interest, which be allowed to pay in six monthly installments commencing from October 01, 2020.

Marathe said banks should be allowed to rework working capital limits with reduced margins of 15 per cent and 25 per cent for all stocks and book debts respectively.

The director will discuss these issues with RBI governor Shaktikanta Das and explore feasibility for convening Board meeting at earliest. RBI is already in close discussions with government for steps to support affected units – both in manufacturing and services sector.  

If advance accounts get classified as non-performing assets (NPAs) due to both lockdown and slowdown, chances of revival of such accounts would be bleak, he said.

Bank officials continue to be apprehensive of possible future investigations by CVC, CAG & CBI. This concern must be addressed on priority basis to give confidence to bank employees to work on revival efforts, Marathe added. 

Moreover, when advance accounts get classified as NPAs, banks get adversely impacted financially which would ultimately result in government infusing additional capital, he said.