RBI governor says no to easing of NPA norms

Bankers seek government’s help.

RBI governor Urjit Patel has ruled out any relaxation in bad loans norms. According to media reports, he conveyed to parliamentarians in a closed-door meeting held in New Delhi on Tuesday, that the strict rules were must to  discipline borrowers and act as a deterrent for banks in the practice of brushing distressed loans under the carpet.
The revised rules of February 12 had come up with a set of rules for banks direction on measures that should be taken by them the moment an account shows initial signs of weakness. Banks had termed the changes harsh and had expressed apprehensions that the new rues it would lead to a sharp hike in bad loans. 
The new rules require banks to initiate the work on a resolution plan from first day of a default and also put in place required plans within 180 days of a default.
Failure to take these measures could lead to the account being referred to the dedicated bankruptcy court. According to reports the ape bank feels these steps are necessary to clean the banking system. 
Notably, RBI withdrew all schemes that were being used to delay the recognition of NPA and leading to banks restructuring their own books and not that of the borrowers. 
Deputy governor N Vishwanathan and executive director Sudarshan Sen are also reported to be part of the closed door meeting with the parliamentarians.
The revised rules mandate that a resolution plan will be considered valid only if endorsed by all lenders in the consortium. Further, the account can be upgraded only after the borrower repays 20 per cent of the principal. Under the revised rules, all debt restructuring schemes, such as converting outstanding debt into equity and giving longer tenure loans with a reset clause, have also been withdrawn by the central bank.  
According to media reports, bank chiefs too had a separate meeting with parliamentarians wherein they sought intervention from them in convincing the banking regulator to relax rules on bad loans and termed the revised rules as ‘harsh’ and displaying  zero tolerance.
The lenders want a minimum of 30 days to start the resolution of a loan and urged the government’s help in persuading RBI to relax the rules regarding 100% consent from all borrowers for restructuring a loan within 180 days.
Further, the bankers sought continuation of old debt restructuring schemes for all their accounts where it has been triggered even if the scheme is not fully implemented. Notably, the RBI, while withdrawing all the debt recast schemes, had said it will be allowed in cases where the scheme is fully implemented and where it is triggered but not yet applied. 
It may be noted that the government does not have a direct say on the regulation of banks, particularly those relating to accounting and recognition of bad loans. However, banks are hopeful that the government may be able to convince the central banks of the banks predicament.
Source: Media reports

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