Large promoters have the strength to “impede any action” taken by banks to recover stressed assets, Reserve Bank of India governor Raghuram Rajan said on Friday, emphasising that banks need to quicken the pace of recovery process and not postpone it. “In some cases, banks have been late in taking action. There are also many impediments as well and large promoters are strong enough to impede any action.”
Rajan also said the RBI is expecting the US Federal Reserve to raise rates next week by 1 to 25 basis points, and is prepared to deal with any eventuality arising out of the decision. “There is 70-75% possibility that the rates would be increased,” he told reporters after a board meeting of the central bank.
The central bank is looking at the way banks use measures intended to help them tackle a crippling bad-debt burden, amid rising concerns that lenders are using the tools to camouflage troubled loans instead. “We have spent much of the last few quarters creating a variety of bank powers to deal with stressed assets. SDR (strategic debt restructuring) is just one of them... Having given those powers, we are now looking at how those powers are implemented. These are meant not so much to postpone the day of reckoning but to actually deal with stressed assets in an effective way.”
SDR helps banks swap unpaid debt for majority control in troubled companies.
Rising non-performing assets (NPAs)— loans that do not yield returns — especially in case of public sector banks, have been a cause of concern for the RBI as well as the government.
(With inputs from PTI and Reuters)