RBI Governor Raghuram Rajan has said the issue of bad loans gets “loaded with a lot of morality” and it is necessary to keep criminal liability separate to put stressed assets back on track.
It is not a point whether defaulters are good people or bad people , whether the company is big or small, whether is popular or unpopular etc.
Questions are asked whether non-performing assets (NPAs or bad loans) were a concern for him given that some “big names and big companies” are linked to the problem.
The Reserve Bank Governor made it crytal clear that the NPA clean-up is simply about whether the loan is “performing or not performing.
There may be good reasons or bad reasons behind a Non -performing asset.It may have become non-performing simply because someone had terrible luck or somebody else’s fault. Sometimes licences are cancelled , sometimes approvals are given to company by statutory bodies in time, sometime one of partners or directors do not perform or commits blunder , commit fraud or sometime divert the fund of the firm for self use or for different use and so on. There may be all sorts of reasons why companies get into trouble.
MR. Rajan said clearly , "if companies get into trouble, the loan becomes a non-performing asset and “we very much want these assets to be back on track,”
It is a completely separate issue of who to blame and whether there is criminal liability involved in a NPA account or with some defaulting firm. In a fraction of the cases there may be criminal liability involved. That should be separated from the whole issue of putting the assets back on track.
Asset is not a criminal. Asset can produce value and can function. Asset should be allowed to produce value even while there is a separate case going on if there was criminal activity involved.
Rajan emphasised that the government has said very clearly it will not interfere in the process of granting loans and “I think that is a very important development. The next stage has been on trying to improve the administrative structure in the banks.”
Rajan said the last part of the stabilisation agenda has been to clean up the stressed assets in the banking sector in order to ensure banks have the room to lend again.
Rajan has said it clearly and without any ambiguity that we want to have our banks get their money back. For that we need a proper bankruptcy system, a court system that functions in finite time and we didn’t have that in the past.
He expressed hope that “there is a reasonable chance” that the bankruptcy code bill will be passed soon and that it will ensure a fully functioning system.
Under bankruptcy code banks and borrowers can renegotiate outside of bankruptcy. Newly framed bankruptcy code keeps you from getting away with too much either on the banking side or the promoter side.
Number of frauds in banks has been rising quarter after after, year after year. Many cases of frauds are not even reported to RBI or reported with inordinate delay. RBI has said clearl that banks have to make provision for the entire amount of a loan in transactions where fraud has been detected in a period not exceeding four quarters.
Sometimes banks feel that if huge provisions are done in a quarter it may adversel affect the finacial report of the bank and are afraid of erosion in image of the bank and its stock value. To smoothen the effect of such provisioning on quarterly profit and loss, banks have the option to make the provisions over a period, not exceeding four quarters, commencing from the quarter in which the fraud has been detected.
RBI said that the banks have to make suitable disclosures with regard to the number of frauds reported, the amount involved in such frauds and the quantum of provision made during the year. This tight and hard instruction will in the long run change the dirty culture of bank officials who in order to save their employees from criminal actions conceal cases of fraud. It is important to say here that the culture of hiding evil acts of an employee who commit fruad like crime lead to escalation in volume and value of such frauds.
Banks must scrupulously adhere to the extant guidelines on classification and reporting of frauds. It is in overall interest of the bank and the country as a whole.
Corporate debt worth $178 billion at default risk: BNP Paribas
A whopping 16.1 per cent or USD 178 billion worth of corporate credit in India is at risk of default, making the domestic banking system the worst in Asia in terms of bad loans.
According to the report by French financial services major BNP Paribas, of the total bank credit of USD 1,109 billion in the country, corporate debt worth USD 178 billion, 16.1 per cent of the total bank credit, stands the risk of default.
India is followed by Indonesia and China with 7.2 per cent and 6.6 per cent of respective total bank credit at the risk of default.
While in Indonesia, USD 22 billion of its total bank credit of USD 305 billion is at potential risk of default, China stares at USD 1,050 billion of potential bad loans. The Chinese banking system is worth USD 15,884 billion.
The brokerage did not specify the time-frame of the report which is based on an analysis of 738 listed companies in Asia which have a combined gross debt of USD 1.7 trillion.
"Mounting corporate debt is one of the biggest problems for Asian economies," the report said.
"Our country-wise analysis highlights the following percentages of bank loans at risk:
6.6 per cent in China,
16.1 per cent in India,
5.8 per cent in Korea,
2.4 per cent in Thailand and
7.2 per cent in Indonesia,"
As per BNP Paribas, policymakers in every country are trying to tackle the debt problem in different ways. "Chinas solution seems to be a debt-to-equity swap. This was tried in China in the late 1990s," .
"The present instance, however, could be different...the government may not assume a significant part of the debt, as it did in the last instance," .
Indias approach is more direct as the "Reserve Banks asset quality review is forcing banks to acknowledge and write off stressed assets leading to severe short-term pain, particularly for PSU banks, but also potential long-term gain once bad loans are fully recognised,"
No comments:
Post a Comment