 "An employee counts rupee notes at a cash counter inside a bank in Agartala")
If RBI decides to be on the same page as the finance ministry on the issue, it will be a relief for India Inc which have found banks reluctant in offering fresh loans till the bad loans issue is fully resolved.
According to finance ministry officials, banks should offer additional credit lines to businesses as “green shoots are emerging” in the economy and need to be “nurtured”. If RBI softens the rules as expected, the banks would have to commit less capital for provisioning.
Just after releasing the bi-monthly monetary policy last week, RBI Governor Urjit Patel told reporters that he “will deal with the situation with firmness but also pragmatism so that the economy does not feel lack of credit to support growth”.
A top government official said, “We will not like to second guess what the RBI Governor has said but the banks do face practical difficulties which he has acknowledged”. The official said the banks have petitioned RBI on provisioning norms and on possible changes in S4A — Scheme for Sustainable Structuring of Stressed Assets. The banks have requested that both need to be changed.
Under the S4A scheme, banks slice through a company’s debt into piles that can be serviced with the current cash flows, distinct from the portion which cannot be sustained. An independent oversight agency is expected to work with the banks on such dicing of bank loans. Also, there is no proposal to set up a “bad bank” — an entity to warehouse bank loans that have gone sour.
The proposed changes are starkly different from the position of former RBI Governor Raghuram Rajan on provisions for bad loans by banks. “We are encouraging the banks to pick themselves up by their bootstraps,” said the government official.
As a part of the new, common stance within the finance ministry and the RBI on the loan overhang, the Bank Boards Bureau will also be asked to relax its strict monitoring. The Bureau has been carefully monitoring the bad loan portfolios of banks in an effort to nurse them back to health. It has taken up this role in addition to the job RBI undertakes vis-a-vis these banks. But the finance ministry is clear this is not the remit of the Bank Boards Bureau. “The powers of the Bank Boards Bureau stems from the appointments committee of Cabinet,” the official said. It has to approach governance from the point of view of picking up the right persons to head the the government-owned banks. The Bureau is headed by former Comptroller and Auditor General Vinod Rai. “But the situation is evolving,” the official said.
IMPACT OF PROVISIONING
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Asset quality review mandated by RBI in second half of FY16 has adversely affected profitability
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Eight public sector banks posted net loss for the full year; three more posted decline in profit
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PSBs expect to see average net new NPA addition of 1.3% between FY17 and FY19
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RBI mandates raising of loan loss coverage by over 70% by FY19
- Govt has set aside Rs 22,915 crore additional capital for 13 PSBs
