RBI, Government In Talks To Strengthen Bad Loan Recovery Mechanisms
RBI, Government looking at whether the oversight committee mechanism can be strengthened.
The Reserve Bank of India (RBI) continues to be in discussion with the government and other stakeholders to find ways to strengthen debt recovery mechanisms, said SS Mundra, deputy governor of the central bank on Thursday.
Speaking on the sidelines of an event in Mumbai, Mundra said that the regulator has provided a number of tools for the resolution of bad loans but there is a recognition that some of these may need to be strengthened. One such tool is the oversight mechanism which was set up as part of the Scheme For Sustainable Structuring of Stressed Assets (S4A) with the intention to whet and clear individual restructuring deals. Last week, the government had hinted that it may expand the purview of the oversight committee beyond that one scheme.
There are a variety of instruments that are available. I think the discussion is coming around that maybe we need to provide more strength to the processes...that is where, you must have seen, that discussions are going on about whether the institution of the oversight committee can be further enlarged or strengthened.SS Mundra, Deputy Governor, Reserve Bank of India
Mundra reiterated that the March 2017 deadline, given to banks to clean up their books and adequately provision against stressed assets, holds. The deadline had been put in place in 2015 when the RBI conducted an asset quality review (AQR) to correct under-reporting of bad loans across the banking sector.
Commenting on the debate around a farm loan waiver, Mundra said that such issues are rarely “black or white” and added that it is important to understand the design of any such scheme. He, however, clarified that the RBI has not being informed of any loan waiver scheme being considered.
The debate around a farm loan waiver has picked up after it was used as an election promise by the Bharatiya Janata Party (BJP) during the Uttar Pradesh Elections. Since then, other states too have been debating it. In the past, the RBI has cautioned against farm loan waivers and maintained that such schemes impact credit discipline.
“Organisational view has always been is that this can impact credit discipline. I think what is more important is to understand the components and where there is a need. And if there is a need, what kind of design can be there which can meet the requirement,” said Mundra.