Bank NPAs: RBI against credit appraisal by third party

RBI deputy governor SS Mundra calls for early recognition of stressed loans

shishir

Shishir Tripathi | March 24, 2015


#NPAs   #non-performing assets   #public sector banks   #PSBs   #RBI   #Mundra  

Non-performing assets (NPA) have become a major concern for the banks and the gross NPAs of the public sector banks stood at Rs 2,60,531 crore, as on December 2014. Highlighting the issue of mounting bad loans, RBI deputy governor S S Mundra on Monday advised the bankers not to outsource their credit processing activities to third-party entities.
 
“The level of stressed assets in the system underscores the need to improve the monitoring of performance of banks as lenders as also the need for the borrowers to adhere to the loan covenants. A key point in this context for the banks is that they cannot afford to outsource their responsibility of credit appraisal which is a basic function to a third party. Lending is the most critical of banks’ functions and that cannot be outsourced,” Mundra said at an event hosted by the Assocham.

He also stressed on genuine efforts to be made for the early recognition of the stressed loans. While discussing the genuine and practical difficulties of running a business, asked the lenders not to “cast aspersions on the intent of the borrowers in such cases”.

He added, “A very common occurrence that strains the banker-borrower relationship is recognition of stress in loan accounts. An account can turn non-performing on account of genuine difficulties– an unfavorable business environment, certain unforeseen political, legal or judicial development. Projects do suffer from delays due to delay in getting permissions and witness cost and time - overruns. It may be difficult for even the most precise of business projections or the most efficient of credit appraisals to foresee these problems. It would be irrational on part of either the supervisor or the banker to cast aspersions on the intent of the borrowers in such cases.”

Further talking about the responsibilities of both the parties he said, “it is important in such cases that the bankers as well the borrowers do admit the problem at the earliest and initiate measures to revive the account including infusion of new equity, sanction of new debt, induction of new promoters etc."

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