NPA resolution mechanisms need to be strengthened: S S Mundra

With inadequacies in the present asset recast regime becoming clear, Reserve Bank of India Deputy Governor S S Mundra on Thursday said various stressed asset resolution mechanisms like oversight committee and joint lenders forums (JLF) need to be strengthened. 
 
Mundra said RBI is in discussion with stakeholders on whether the institution of oversight committee can be further enlarged or strengthened. This is also relevant to the whole working of the JLF mechanism, he told media persons after inaugurating a branch of private lender Bandhan Bank in South Mumbai.
 
He, however, refused to give a deadline by when RBI will come out with the modifications.
 
Elaborating on the JLF mechanism, he said all the bankers will have to come together and decide the future course of action, the call on valuation has to be transparent, and adequate provisions have to be made if they decide to take a haircut.
 
Asked about the lack of progress on Strategic Debt Restructuring (SDR) cases where banks have not been able to find buyers, Mundra said the lenders are still hopeful and there is still some time.
 
In cases where SDR was used, banks could treat the exposure as standard asset for 18 months and use that time to find a suitable strategic partner for the account. At the end of the 18-month window, the loan would become a non-performing asset (NPA).
 
The central bank had last month said the pace of generation of new NPAs had slowed down, but expressed concern over the resolution, leading to speculation on whether it was considering introducing newer mechanisms.
 
Sticking to the March 2017 deadline for bank books’ clean-up, Mundra said banks must meet the capital adequacy norms all through, after taking haircuts. At the start of the asset quality review in 2015-16, banks were told to identify stressed assets and make prudential provisions for them.
 
Referring to dip in collections of microfinance institutions, he said some pressure (delinquencies) after demonetisation was expected and that's the reason the RBI gave forbearance for asset quality treatment. “The pressure is short- term pain and not a matter to worry. The Reserve Bank is keeping a close watch on the unfolding situation,” he said.
 
Mundra mum on farm loan waivers
 
Mundra declined to spell out the central bank’s position on farm loan waivers amid growing clamour in some states in this regard.
 
“Any general statement on either this side or that side (of farm loan waiver) will not be appropriate,” he told reporters.
 
The Reserve Bank has not received any communication on this subject from the government, Mundra said. He, however, said that traditionally, the RBI has been concerned over farm loan waiver because of the impact on “credit discipline” that it can have.
 
“There is rarely a shade of white or black in the world. There is always a shade of grey,” Mundra said, when prodded further on whether RBI sticks to its earlier stance.
 
“I think what is more important is to understand the component and where there is a need and if there is a need, what kind of design could be there which can meet the concern of all the requirements,” he said.

With PTI inputs