Aim to make non-performing assets productive, says Raghuram Rajan
Mumbai: The aim of the Reserve Bank of India (RBI) when it
comes to non-performing assets is to make them productive, Governor Raghuram
Rajan said on Tuesday even as he sent out a clear message that willful
defaulters would be dealt with strongly.
Asserting that the Finance Ministry and the RBI are on the same page when it comes to recovery, he said, "This is not being said to create an atmosphere of fear or to be vindictive."
He promised that the apex bank will soon take some nuanced measures to get stressed assets back on track.
"On projects that are in trouble, we actually have offered a nuanced view to banks. We had a discussion even today. We have to find a way to get the real assets back on track," Mr Rajan told reporters at the customary post-policy meeting in Mumbai Tuesday evening.
"Nobody wins if the economy is deprived of a power plant or a road, which would otherwise have been functional and helped the economy," said the RBI chief, who mentioned during his inaugural address that nobody had any "divine right" to defraud public money by mismanaging a company and yet remain in control of the same company.
"The message coming from both the finance ministry and the RBI is on the same page -- do whatever is necessary to recover the money. This is not being said to create an atmosphere of fear or to be vindictive. It is basically what we need to do to get the assets back," he said.
In a situation where promoters are clearly unable to carry that forward or where there is clear evidence of divergence, banks should take action, and they should not neglect such situations, he said.
RBI Deputy Governor K C Chakrabarty said that banks are free to bring about structural changes in companies where promoters have defaulted.
"We don't like to intervene and guide the banks that -- you change the promoters. Let that be left to the discretion of the bank, existing promoter and the legal system," Mr Chakrabarty said.
Attributing rising bad loans in the banking sector mainly to large borrowers, Finance Minister P Chidambaram said on October 22 that the government would monitor 30 NPA accounts of each PSU bank.
Although rising non-performing assets (NPAs) are a function of economic slowdown, Mr Chidambaram said they are "unacceptable" and banks should beef up efforts by setting up a separate vertical to recover dues from written-off accounts.
"We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over Rs. 1 crore) who are defaulting," Mr Chidambaram had said.
The bulk of the NPA was from those who borrowed Rs. 1 crore and more, he had said.
"We have told them to keep a very close watch on these largest accounts and have to recover the amount...I hope recoveries will improve."
As of June, the gross NPA of nationalised banks was 3.89 per cent and State Bank Group at 5.50 per cent of total advances.
The RBI raising the repo rate to fight inflation and the government forcing banks to cut interest rates for certain segments to boost growth does give an impression that the government and the RBI are pursuing different goals, Mr Rajan said, adding that both the apex bank and the government "are on the same page when it comes to propping up growth".
However, he admitted that there is a divergence between the two on the model of growth - the government model is consumption-driven, while RBI's model is investment-driven.
"We need to see that growth is back. We would like to see more growth in investments, rather than consumption. But people invest when they see demand. So, to the extent that there is more demand, it will propel the investment cycle as well. But, of course, too much demand is also potentially going to add to inflation," he said.
"In that light, you could argue that if the RBI has to do it, it wouldn't go out and ask banks to cut their lending rates, at the same time we raise our rates, because we raise interest rates to quell demand. In this sense, yes, we are on a different page with the government," he said.
"But I can understand why they (government) are doing it. To the extent that it feeds back into investment, it helps on the supply side," the RBI Governor said.
Asserting that the Finance Ministry and the RBI are on the same page when it comes to recovery, he said, "This is not being said to create an atmosphere of fear or to be vindictive."
He promised that the apex bank will soon take some nuanced measures to get stressed assets back on track.
"On projects that are in trouble, we actually have offered a nuanced view to banks. We had a discussion even today. We have to find a way to get the real assets back on track," Mr Rajan told reporters at the customary post-policy meeting in Mumbai Tuesday evening.
"Nobody wins if the economy is deprived of a power plant or a road, which would otherwise have been functional and helped the economy," said the RBI chief, who mentioned during his inaugural address that nobody had any "divine right" to defraud public money by mismanaging a company and yet remain in control of the same company.
"The message coming from both the finance ministry and the RBI is on the same page -- do whatever is necessary to recover the money. This is not being said to create an atmosphere of fear or to be vindictive. It is basically what we need to do to get the assets back," he said.
In a situation where promoters are clearly unable to carry that forward or where there is clear evidence of divergence, banks should take action, and they should not neglect such situations, he said.
RBI Deputy Governor K C Chakrabarty said that banks are free to bring about structural changes in companies where promoters have defaulted.
"We don't like to intervene and guide the banks that -- you change the promoters. Let that be left to the discretion of the bank, existing promoter and the legal system," Mr Chakrabarty said.
Attributing rising bad loans in the banking sector mainly to large borrowers, Finance Minister P Chidambaram said on October 22 that the government would monitor 30 NPA accounts of each PSU bank.
Although rising non-performing assets (NPAs) are a function of economic slowdown, Mr Chidambaram said they are "unacceptable" and banks should beef up efforts by setting up a separate vertical to recover dues from written-off accounts.
"We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over Rs. 1 crore) who are defaulting," Mr Chidambaram had said.
The bulk of the NPA was from those who borrowed Rs. 1 crore and more, he had said.
"We have told them to keep a very close watch on these largest accounts and have to recover the amount...I hope recoveries will improve."
As of June, the gross NPA of nationalised banks was 3.89 per cent and State Bank Group at 5.50 per cent of total advances.
The RBI raising the repo rate to fight inflation and the government forcing banks to cut interest rates for certain segments to boost growth does give an impression that the government and the RBI are pursuing different goals, Mr Rajan said, adding that both the apex bank and the government "are on the same page when it comes to propping up growth".
However, he admitted that there is a divergence between the two on the model of growth - the government model is consumption-driven, while RBI's model is investment-driven.
"We need to see that growth is back. We would like to see more growth in investments, rather than consumption. But people invest when they see demand. So, to the extent that there is more demand, it will propel the investment cycle as well. But, of course, too much demand is also potentially going to add to inflation," he said.
"In that light, you could argue that if the RBI has to do it, it wouldn't go out and ask banks to cut their lending rates, at the same time we raise our rates, because we raise interest rates to quell demand. In this sense, yes, we are on a different page with the government," he said.
"But I can understand why they (government) are doing it. To the extent that it feeds back into investment, it helps on the supply side," the RBI Governor said.
.gif)
Share It & Spread It
Like , Connect & Follow for More
Updates
Aim to make non-performing assets productive, says Raghuram Rajan
Reviewed by Unknown
on
1:28:00 AM
Rating:
Reviewed by Unknown
on
1:28:00 AM
Rating:
No comments