Corporations and banks should not find artificial fixes for non-performing assets, and it was important for them to clean up their balance sheets and focus on putting the asset back on stream, RBI Governor Raghuram Rajan has said.

“At the Reserve Bank, we keep hearing corporations come to us, banks come to us, saying give us some forbearance. Don’t call this a bad loan even though it hasn’t paid for three years. Allow us to postpone recognition. This is the wrong way to do a problem. Postponing recognition will not help; if it’s not paying today, it won’t pay tomorrow. Best thing to do is make sure the asset itself become viable. Focus on putting it back on stream,” he advocated.

“Once you focus on putting the asset back on track, the rest is accounting for it. But don’t keep postponing the recognition of the problem by saying give us some forbearance, treat this as a performing asset and so on. I think if we do that, clean up our act, clean up our balance sheets, the markets will be willing to provide finance to the institutions that have streamlined and create the space for financing going forward,” he said.

“So, let’s not try to find artificial fixes, let’s go about fixing in the right way,” he said. Admitting it was hard, it was at times of stress that the men got distinguished from the boys and the women from the girls, and the truly good bankers will figure out ways to put their balance sheets back on track, he quipped.

Later, speaking on RBI’s approval of bank licences to IDFC and Bandhan Financial Services, he said, “This was the set of applicants that the Jalan Committee as well as the RBI felt comfortable with. We have opened up the possibility that applicants can apply again once we put the licences on tap, as well as we create differentiated licences. Some of the applicants may be better off applying for a differentiated licence rather than the full licence.”

IDFC, Bandhan found most suitable for bank licence: Rajan

The RBI Governor said that the approval for bank licence was given to two applicants found to be the most suitable.

On April 2, the RBI had announced in-principle nod for bank licences to infrastructure company IDFC and Kolkata-based micro-financer Bandhan Financial Services.

Applicants

There were 25 (of an original 27) applicants in the fray, including companies such as Bajaj Finance, Reliance Capital and Aditya Birla Nuvo.

“This was the set of applicants that the Jalan Committee as well as the RBI felt comfortable with.

“We have opened up the possibility that applicants can apply again once we put the licences on tap, as well as we create differentiated licences. Some of the applicants may be better off applying for a differentiated licence rather than the full licence,” he said.

(This article was published on April 4, 2014)
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