Bad loans still a worry for RBI as Patel hopes banks pass on cut

Reserve Bank of India will continue to tackle bad loans so that credit flow from banks are not restrained and the banks’ books are cleaned up faster.

Reserve Bank of India will continue to tackle bad loans so that credit flow from banks are not restrained and the banks’ books are cleaned up faster.

Governor Urjit Pa tel, in his first policy meet, said that while earlier the RBI satisfactorily identified, recorded and reported bad loans, “we need to work more on there solution, which is the fourth leg ”. (AFP)

Governor Urjit Pa tel, in his first policy meet, said that while earlier the RBI satisfactorily identified, recorded and reported bad loans, “we need to work more on there solution, which is the fourth leg ”. He also focussed on RBI’s stance on repo rates at the meeting.

The central bank will soon give relief to banks on the S4A (scheme for sustainable structuring of stressed assets) scheme to tackle bad loans, he said. As part of the scheme launched in June, banks needed to segregate their bad loans into sustainable and unsustainable debt.

After RBI changes the norms, banks will be able to classify a sustainable portion of debt as standard loans instead of NPA.

Patel however made no reference to creating a “bad bank”, which was publicly rejected by his predecessor Raghuram Rajan.

The new RBI governor shared Rajan’s views on slow transmission of rate cuts. “I agree that transmission (from policy rates) to bank lending to bank borrowers has been less than anyone of us would have liked. We are hoping that over the next quarter or two this would change,” Patel told reporters.

However, transmission in money markets, where financial instruments with very short maturities are traded, has been swift and corporates are using those more than vanilla bank credit, he observed.