Mumbai, Sept. 20: After trying to scare the spectre of inflation with a rate hike, Raghuram Rajan is getting ready to wrestle with the next intractable problem on his agenda: mounting bad loans on the books of banks.
The RBI governor said he would be hunkering down with government officials to examine corporate distress in times of an economic slowdown and the resultant rise in non-performing assets (NPAs) of banks.
He said the central bank would also look at deepening the various components of the financial market.
“Over the next few weeks, together with the government, we will take a close look at corporate distress and bank NPAs to see how we can accelerate the process of resolution. Finally, we are taking a look at a variety of markets to deepen them and make them more vibrant. Measures will be announced periodically,” Rajan told reporters after unveiling his first monetary policy statement.
Upon assuming charge at Mint Street earlier this month, Rajan had said the central bank would look at improving the efficiency with which lenders recover money from loan defaulters.
“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 had said in a message to wilful defaulters.
He had added that the central bank would shortly come out with norms on restructuring or recovery of their bad loans.
After he took over, Rajan had also announced measures like a swap facility for NRI deposits and overseas bank borrowings to give a fillip to inflows. He also relaxed branch licensing rules, permitting banks to open branches in tier 1 centres without the RBI approval.
This is, however, subject to the condition that at least 25 per cent of the total number of branches opened during the financial year should have come up in unbanked rural (tier 5 and tier 6) centres or those regions which do not have a brick and mortar structure of any scheduled commercial bank for customer-based banking transactions.
Rajan also said the central bank would introduce consumer price inflation-linked savings certificates by November to provide some cover to households.
“We have started the process to issue two kinds of retail inflation indexed certificates, one with a lump sum payment at the end and the other with indexed interest payments,” he added.