Home World Economy Wake up call for defaulters: Financial Services Secretary Rajiv Kumar

Wake up call for defaulters: Financial Services Secretary Rajiv Kumar

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Financial services secretary Rajiv Kumar on Tuesday dispelled any fears that the new the new guideline on bad loans issued by the central bank will impact banks’ provisioning requirements.

“We don’t see much impact on provisioning,” he said adding it should not impact growth. Rai said that all provisioning requirements were taken into account while announcing the Rs 2.1 lakh crore capital infusion package.

“Besides banks are looking to raise more capital through sale of non-core assets,” he said.

The financial services secretary noted that that the new guideline on bad loans issued by the central bank shows the government’s resolve to clean up the mess in the banking system and not defer it.

“It is a wakeup call for the defaulters,” he said adding that the Bankruptcy Code is a much transparent system for resolution and that phasing out of the old schemes is an acknowledgment of the same.

According to The Economic Survey 2018 over 525 cases of corporate insolvency cases worth Rs 1.28 lakh crore have been admitted across all the National Company Law Tribunal (NCLT) benches. Out of the 10 cases resolved so far banks have taken substantial haircut except that of Prowess International Pvt. Ltd where the financial creditors fully recovered their exposure.

The Reserve Bank of India on Monday issued new directives for resolution of bad loans under which resolution plan needs to be completed within 180 days for loans above Rs 2,000 crore failing which lenders will file insolvency application, singly or jointly, under the Insolvency and Bankruptcy Code 2016 (IBC).

Besides further tightening of both reporting and resolution norms, the central bank also withdrew the existing schemes for resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A).

Experts opine that RBI’s stressed assets resolution framework is a bold reform to address this huge challenge facing the Indian banking system (after IBC).

“This builds on the message by the government that going forward the old norm no longer holds true and lending will be a much more serious business,” noted Manish Aggarwal, Partner and head Resolutions, special situations group, KPMG India.

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