Key RBI departments go slow on sensitive issues ahead of Nov 19 board meet

Senior officials hold back on opinion to industry

Ahead of the crucial board meeting on November 19, key departments of the Reserve Bank of India have gone slow on taking a view on sensitive issues. While routine matters are being attended to, senior bankers say views sought by them from the RBI on contentious regulatory aspects are being deferred.

Top sources say officials above the rank of chief general manager in the highly sensitive Department of Banking Regulation, Department of Banking Supervision, Department of Non-Banking Regulation, Financial Markets Operation Department, Financial Markets Regulation Department, and the Inspection Department appear to have gone into a huddle. The overall thinking across these departments seems to be that discussions on revenue and income recognition, asset-liability management, provisioning for bad loans, etc, will now be taken up with the banking industry only after Monday’s meeting.

“As these issues are on the table for the board meet, the sense we get is they feel it’s better to hold on for now from giving an opinion. As even if the query is bank-specific, their opinion sets a precedent for the industry," said a senior banker, given the huge stakes at the board meet.

Another factor that is holding up response to queries from Mint Road on the accounting front is the stay given by the Supreme Court (SC) on Rs 2 trillion of power loans.

Subsequently, State Bank of India (SBI) has also filed an affidavit in the SC, which noted that the net worth of the three power producers — Adani, Tata and Essar Group —had almost eroded. “The monies lent and advanced by SBI and other banks are at serious and imminent risk. So far as Essar Power Gujarat is concerned, it is already an NPA. The other two companies (Adani and Tata) are servicing their debt but have been addressing letters that they would be constrained to stop operation since they cannot continue to run the plants at a loss,” SBI had said in its affidavit.

Top sources say the board meet will also see a discussion on the dissent note put in public domain by Mint Road on the proposed payments regulatory board; the road ahead for the National Payments Council of India, which was the trigger for the current standoff after Uttam Nayak’s appointment as its CEO was shot down by North Block despite Governor Urjit Patel’s nod; and the February 12 circular, which tightened the screws on the treatment of bad-loans even as it consigned the corporate debt restructuring and strategic debt restructuring mechanism to the dustbin. A big flashpoint is going to be the treatment of delay in servicing debt even by a day as a case of default in the account and proceedings being initiated to treat it accordingly.

From an accounting point of view, Monday’s board is of particular import for banks. If the RBI were to back-pedal on provisioning norms and the Prompt Corrective Action framework, which has 11 banks under it, by extension it will cause a sea-change in bank’s books.

On the menu

• RBI will not back-pedal on dissent over payments regulator and February 12 circular
• One-day default clause to come up as flashpoint
• SC stand on Rs 2 trillion power loans also affecting decision making at RBI on accounting issues
• PCA relaxation not seen as material immediately as end-March provisioning will eat up capital further, leading to fall in capital adequacy of the 11 banks in quarantine