FinMin lauds RBI efforts in monitoring bank bad debts

The Finance Ministry has lauded the efforts of the Reserve Bank of India in monitoring bad debts, even as the Standing Committee of Finance was critical about the RBI’s role in not controlling the burgeoning non-performing assets of banks.

The Secretary of Financial Services told the panel that the RBI is a strict regulator. “As far as the RBI is concerned, the impression in the Ministry is that the RBI is a very strict regulator. It is doing its job properly. Even banks find it difficult,” the Secretary told the panel during the course of oral evidence.

The report of the Standing Committee on the NPA quoted him as saying: “Even if there is a default of one day, instead of 90 days, it becomes 91 days, the banks have no option but to immediately call it an NPA. So that kind of strictness is there.”The secretary also said that one of the reasons why the NPA percentage was building up is because of the RBI’s strictness and “no kind of a leeway is allowed to banks in terms of fudging their balances.”

“Somebody asked: Are we fudging the figures? No. In fact, the RBI is so strict with all the banks. This is how it should be,” the official added.

The RBI told the panel in a written submission that the “90 days delinquency is uniformly applicable to all loans and advances (except for agricultural advances where it is linked to crop cycle), as is done internationally, as it is essential to identify impairment in order to provide for it.”

“In order to make sure that books of the banks reflect true value of their assets, we have advised that banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs and responsibility and validation levels for ensuring proper asset classification may be fixed by the bank,” the RBI’s note added.

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