Credit processing is a core activity, don't outsource it: RBI to banks

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Mar 24, 2015 01:52 IST

The Reserve Bank of India (RBI) cautioned banks against outsourcing credit processing activities to third-party entities as the level of non-performing assets (NPAs)was rising to “an uncomfortable level”.

“We encourage banks to outsource non-core activity, but credit processing is not a non-core activity. It is the foremost core activity of a banker,” said SS Mundra, deputy governor, RBI.

Speaking at The Associated Chambers of Commerce of India (Assocham) event, he said outsourcing credit processing would worsen the problem of bad loans.

RBI data pegs PSU banks’ gross NPAs at Rs 2,60,531 crore as of December 2014. As many as 2,897 borrowers have defaulted Rs 10 crore and above as of September 2014, with the outstanding amount estimated to be Rs 1.60 lakh crore.

Mundra said several attempts were on to correct the issue with the establishment of a central fraud registry also being contemplated.

Speaking on the sidelines of the event, he said the RBI was in discussion with the Centre over the setting up of a monetary policy committee.

The government proposed to set up the committee with the objective of targeting inflation and accordingly fixing monetary policy rate.

Meanwhile, RBI deputy governor R Gandhi said the government’s high borrowing programme was hindering the development of a deeper corporate bond market in the country. He was speaking at a conference organised by Care Ratings in Mumbai.

The deputy governor’s comments come at a time when the Union Budget proposed the setting up of Public Debt Management Agency (PDMA) to manage the government’s borrowing, relieving the RBI of those responsibilities.

“If we compare with the government bond market, the corporate bond market is dwarfed,” he said, adding that as a percentage of GDP, the outstanding government bonds were at 49.1% while corporate bonds were at 5.4% in 2013.

He, however, said the government’s fiscal consolidation plan would help deepen the corporate bond market. Gandhi also said foreign portfolio flows into corporate bonds were being monitored, and their investment limits could be reviewed if the limits are fully utilised.

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