NPA Management: RBI Role

NPA Management: RBI Role

The Central Bank, RBI is gearing up to take up the plump role in managing NPAs of Banks.  This is a fight against the Bad Debts that is daunting the PSU Banks for quite some time.  These are expected to be formulated by the end of this month by the Government.  Its policies include:

  1. Restructuring big ticket loans
  2. Hair cut decisions to be taken by banks.

Here RBI will not be getting itself directly involved individual accounts, however will provide broad guidelines to be followed.  The outcome is expected to be like this.

  • This plan will empower RBI to keep a watch on large willful defaulters.
  • RBI may be allowed to take a call on the losses that banks can absorb in case of Joint Lenders’ Forum failure to decide on haircut.
  • A JLF (Joint Lenders’ Forum) will be compulsorily formulated when the total exposure of banks exceeds Rs. 100 crores in a case.
  • The approach would include –assets auctioning by banks, one time settlement, setting up of more oversight panels and reformulation of JLF mechanism, for a faster resolution of NPAs.
  • Criminal Cases would also be initiated against large willful defaulters.

It is pertinent to add that the steps initiated for resolving the Stressed Assets issue did not work effectively though several schemes were brought in to review the quality of assets and bringing out a compromise on bad loans recovery.  This was mainly due to

  1. Unreliable Cash Flow projections in several cases.
  2. Lack of expertise in many cases,
  3. During haircut processes, selling of companies was a herculean task.
  4. During RBI’s review of quality of Assets, it was revealed banks were concealing at least 50% of NPAs.


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