Bankers ask RBI to extend deadline for NPAs restructuring to December

Bankers ask RBI to extend deadline for NPAs restructuring to December
The Financial Express, July 8, 2009, Page 13

fe Bureau, New Delhi

The bankers have asked the Reserve Bank of India (RBI) to extend the existing deadline for facilitating the restructuring of the defaulting accounts to December 30.

A day after the Budget, RBI governor, D Subbarao and all three deputy governors-Usha Thorat, Shyamala Gopinath and KC Chakrabarty- to take stock of the current situation and offer suggestions for the forthcoming announcement of first quarter review of annual credit & monetray policies on July 21.

Leading bankers who met the RBI officials are chairman, State Bank of India, OP Bhatt, managing director, ICICI Bank Chanda Kochhar, chairman & managing director, Canara Bank AC Mahajan, chairman & managing director, IDBI Bank Yogesh Agarwal, and discussed on range of issues including situation about non-performing assets, government borrowing programme and infrastructure finance.

Bhatt said RBI’s deadline for restructuring of accounts by banks ends by June 30. ``But, in case of consortium lending where there are dozens of banks, the process is taking a lot of time because bankers have to meet and they have to go back top their management committees or boards. On the other hand, the borrowers too have to go to their management on the issue. So, in some cases, the processes cannot be over by June 30, though the process has already commenced. So, there was a request that some more time could be given and it would be better if the time was extended until December as in case of agricultural relief which the government has already done.’’

According to him there is not much credit growth in the system.

``At least, during the first quarter of this year, there is not much credit growth. The consensus is that there are lots of signs available in the economy. And that despite business activities improving across multiple sectors, the economic activities are not showing up in bank lending. But, we believe that by the time lag, it is going to happen. So, more credit growth will take place now than the last quarter and in the second half of the year, it is going to be much, much better.’’ The bankers also discussed whether the NPA handling by the banking system have been good or something more needed to be done for it. Some discussion on liquidity also was a part of interaction between bankers and RBI deputy governors.

The bankers were of the opinion though currently, there is liquidity overhang in the system, it would be all sucked out once government borrowing programme, which is quite large during the year begins and possibly strain the system . The bankers are in favour of consensus on the time and overall management of borrowing programme.

However, the bankers urged the RBI to manage government borrowing in a phased manner so that there is no pressure on interest rates. By and large, it should be possible to manage it in a manner that it will not pose any huge stress on the system. “First, we discussed what can be done to create mid-term or long-term market for infrastructure issue and the NPA in the infrastructure which have become sticky assets because there is a delay in implementing the project because of land acquisition or environmental clearances. Whether these can be treated as special cases,’’ said Bhatt.

Commenting on the Budget, Bhatt said that if the government makes finances available to the bankers, then lending for infrastructure sector would be easier for bankers. On interest rate, Bhatt said that at the moment, the interest rate scenario is very soft. “Maybe for some industries and for some players, it could see further softening, which could take place. But down the line, when credit growth picks up and when all the borrowings take place, either it would stabilise there or it may even harden a little bit,’’ he said. IDBI Bank CMD Yogesh Agarwal said there are two kinds of interest rates. “While 10-year G-Sec yield will go up with market borrowings, interest rates on credit growth is essentially a function of demand and supply. So much of liquidity is there in the market right now and no much credit offtake was happening. So, I don’t see interest rates rising further,” he said.