The Hindu Business Line : New corporate debt revamp norms soon, says RBI Governor<br> 'Cos must disclose risk exposures'

Money & Banking - Non-Performing Assets
Corporate - Restructuring

New corporate debt revamp norms soon, says RBI Governor
'Cos must disclose risk exposures'

Our Bureau

Dr Y. V. Reddy, Governor, RBI, and Mr A. K Purwar, Chairman, State Bank of India, at the FICCI - IBA conference in Mumbai on Friday. - - Paul Noronha

Mumbai , Oct. 7

THE Reserve Bank of India will come out with the revised guidelines for the Corporate Debt Restructuring Mechanism in a couple of weeks, the RBI Governor, Dr Y.V. Reddy, said here today.

A special group recently reviewed the CDRM and the revised guidelines will be based on its recommendations.

Dr Reddy said the efficacy of the CDRM was evident from the fact that over 100 cases had been approved for restructuring under this system, since it became operational in March 2002. The revised CDRM will make the restructuring smoother for genuine cases, he said.

Speaking at a banking seminar, Dr Reddy said the practice by commercial banks to underprice the risk in corporate loans (charging lower interest rates), while overpricing the risk (charging higher rates) in lending to agriculture and small and medium enterprises sector was a matter of concern. There was, therefore, a need to review the current process of pricing credit.

Another area of concern was the risk management practices of banks and corporates. While banks' risk exposures and their risk management strategy is usually an item of public disclosure, there is a corresponding need for corporates too to make adequate disclosures regarding their risk exposures, especially to derivatives and foreign exchange. This would enable the banks to assess the risk profile of the corporates accurately.

Dr Reddy urged the corporates to make such disclosures voluntarily, even as the Institute of Chartered Accoutnants of India was working on making it mandatory.

The corporates active in treasury management need to be well-equipped to identify, manage and control the risks, especially when often they are counter parties to the treasury of banks, he said.

The RBI would also advocate a closer dialogue between banks and corporates over a wider spectrum. For the regulator, it is not enough if banks adopt satisfactory methods of risk management, they should also have an adequate level of understanding of risk management by their corporate clients.

"There is an element of delegated supervision to be exercised by the banks over the corporates," Dr Reddy said.

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