In view of rising non-performing assets of banks, the provision coverage ratio (PCR) of banks should be increased.This was stated by Deputy Governor of the Reserve Bank of India (RBI), N S Vishwanathan, while inaugurating the national conference on Risk Management-Key to Asset Quality, organised by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) in New Delhi .
“Any bank which does not have a strong risk management is likely to build a highly susceptible credit portfolio. Risk management is not static but evolves over a period of time, and it need not be the same for all. Its sophistication grows with the growth in the complexities of a bank’s functioning,” he added.
“We believe that the information asymmetry is the main bottleneck in sound credit appraisal and strong credit monitoring. The RBI has created a large loan database (CRILC) that covers all loans of over Rs five crore. The database is accessible to all the banks and it allows banks to identify incipient sickness that is reflected in repayment behaviour,” said Vishwanathan.
“By leveraging the CRILC database, lenders can coordinate their planning for recovery and resolution of the affected unit through a Joint Lender’s Forum (JLF) as soon as the early signals of sickness are noticed,” he added.
“While we understand that businesses can get into financial difficulties and genuine business needs should be supported, we believe that malfeasance should be properly dealt with. The RBI has put in place a detailed system for identifying willful defaulters and non-cooperative borrowers with attendant consequences to the borrowers who are so declared. A fraud registry has also been created to deal with frauds sternly,” said Mr Vishwanathan.
The government has taken certain steps to speed up the debt recovery process. These include amendment to the DRT and SARFAESI Acts, enactment of insolvency code and setting up of a committee to formulate detailed rules and regulations to operationalise the insolvency code. Alongside, steps have also been taken to improve the corporate governance in public sector banks.
We have issued guidelines to make large borrowers to go to capital market for part of their funding needs. The revised draft on large exposure has also been issued. We have also allowed increased credit enhancement to be provided by banks for bonds issuances to make them attractive for long investors, added Deputy Governor RBI.
R.K. Gupta, Co-Chairman, National Council on Banking & Finance ASSOCHAM said that the banking industry has been passing through a difficult phase and vulnerabilities remain. There has been a general decline in the asset quality. “One way is to strengthen the risk management by sharing information amongst banks’ so as to ensure to preventive measures,” said Mr Gupta.