RBI governor Raghuram G. Rajan with his predecessor D. Subbarao in Mumbai on Wednesday. (Reuters)
Mumbai, Sept 4: Big borrowers who renege on their loan repayments had better watch out.
RBI governor Raghuram Rajan today said the central bank planned to improve the loan recovery system and defaulters may have to face harsh consequences.
“Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalise their failed ventures,” he said in a sharp message to the defaulters.
He added that the central bank would soon come out with norms on restructuring or recovery of banks’ non-performing assets (NPAs). The gross NPAs of the banking sector was estimated at Rs 1,83,900 crore at the end of March this year.
Banks have seen a spike in loan defaults with the economy passing through a slowdown. This has also been evident in the current fiscal with lenders reporting a rise in the number of restructured loans.
Laying down the broad principles that banks may be asked to follow, Rajan said loan recovery should be focused on efficiency and fairness and that it should preserve the value of underlying assets and jobs where possible while re-deploying unviable assets to new uses.
He, however, added that the banking system had to be “tolerant” in genuine cases where promoters had been hit by the economic slowdown. But in the case of mismanagement or fraud, the lenders must come down “hard”.
Rajan revealed that deputy governor K.C. Chakrabarty would closely look at rising NPAs in the sector and the restructuring or recovery process after which the Reserve Bank would announce steps in this regard.
The central bank will also look at ways to improve the working of debt recovery tribunals and asset reconstruction companies that buy stressed debt.
Rajan added that the RBI was planning to collect credit data and examine large common exposures across banks. This will enable the creation of a central repository on large credits, which will be shared with the banks.
Meanwhile, in another move aimed at increasing inflows from external commercial borrowings (ECBs), the apex bank decided to permit borrowers to avail themselves of such loans under the approval route from their foreign equity holder company with minimum average maturity of seven years for general corporate purposes. Earlier, corporates could not borrow these funds for general corporate purposes.
India Inc today said it looked forward to the new RBI governor for initiating a cut in interest rates and improving credit flow to crucial sectors such as infrastructure to put the economy back on high-growth path.
“We are sure, that as soon as the situation so allows, reversing interest rates downward along with taming inflation would be Rajan’s top priorities,” Assocham president Rana Kapoor said.
“The CII is confident that Rajan would be able to deal with the complexities that the RBI is faced with,” CII director-general Chandrajit Banerjee said.