Page 154 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 10: Financial Services

Notes
The loans for the weaker sections of the society and the waiving of the loans to farmers are
another dimension of the politicization of bank lending. Most of the depositor's money
has been frittered away by the banks at the instance of politicians, while the same depositors
are being made to pay through taxes to cover the losses of the bank.
RBI Guidelines to Tackle the NPA Problem
To improve the efficiency and profitability, the NPA has to be scheduled. Various steps
have been taken by government to reduce the NPA. It is highly impossible to have zero
percentage NPA. But at least Indian banks can try competing with foreign banks to maintain
international standard.
Various steps have been taken by the government and RBI to recover and reduce NPAs.
Some of them are:

1. One time settlement/compromise scheme
2. Lok adalats
3. Debt Recovery Tribunals
4. Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act 2002
5. Corporate Reconstruction Companies
6. Credit information on defaulters and role of credit information bureaus.

Apart from these, RBI has been off late relaxing NPA norms to help the economy not only
sustain itself in the time of the global crisis but also grow in such times. One such example
can be seen in the January 2009 relaxation in the norm made by the Reserve Bank of India
which now state that all accounts which were standard accounts on September 1, 2008
would be treated as standard accounts on restructuring provided the restructuring is taken
up on or before January 31, 2009 and the restructuring package is put in place within a
period of 120 days from the date of taking up the restructuring package.
The period for implementing the restructuring package has also been extended from
90 days to 120 days in respect of those accounts. The special regulatory treatment will also
be available to 'standard' and 'sub-standard accounts'. These provisions would be in addition
to the usual provisions as per the current regulation.

Further liberalising the prudential norms for the treatment of non-performing assets in
the context of ongoing slowdown in the Indian economy, Certain modifications are
necessary as the spillover effects of the global downturn had started affecting the Indian
economy particularly from September 2008 creating stress for the otherwise viable units,
said RBI.
Earlier special regulatory treatment was extended to commercial real estate exposures
restructured for the first time as well as to exposures (other than commercial real estate,
capital markets and personal/consumer loans) which were viable but were facing temporary
cash flow problems and needed a second restructuring.

The RBI which had announced liberalisation of NPA norms earlier had received
representation that the accounts which turned non-performing between September and
December 2008 were excluded from the special regulatory treatment extended in December
2008.

Contd....

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