Kanan Joshi's letter to the editor, "Under duress" (February 9), makes pertinent points about the Reserve Bank of India (RBI). I am privy to some of the audits conducted by RBI officials, who have little knowledge of how core banking solutions are implemented by PSBs. Just gazing at the files and papers for hours together with snacks in between will not reveal any information. These officials come for a couple of days, submit their report and leave. They browbeat small private banks and let off behemoths.
I want to highlight their failure in arresting the deterioration of loan quality and credit appraisal, and their decision to let banks enter a consortium even if it knows that a particular company has defaulted within months of availing of credit. In such a situation, the RBI is likely to allow the corporate entity to avail of more credit from PSBs without any collateral. Later, the corporate entity becomes bankrupt.
Sale of assets to asset reconstruction companies (ARC), mostly by PSBs, needs thorough investigation. The distressed assets are sold with a margin requirement of five per cent - now raised to 10 per cent - and rest on the strength of security receipts issued by the ARCs concerned. The value of the receipts depends on the value of security offered. When ARCs enter the market for the sale of assets through auction, they find that their Rs 100 crore in security receipts are worth Rs 25 crore only. What takes the cake is that these ARCs have requested RBI clearance for refinance from the same PSBs. The fence (RBI) has started eating the grass (PSBs).
Vasudeva Rao Ahmedabad
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