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RBI outlines broad plans on $150 billion bank bad loan resolution

2312 Viewed Pallavi Kumar Comments Off on RBI outlines broad plans on $150 billion bank bad loan resolution

The Reserve Bank of India (RBI) outlined the broad contours of a plan to resolve the $150 billion bad debt problem plaguing the country’s banks

Mumbai: The Reserve Bank of India (RBI) outlined on Monday the broad contours of a plan to resolve the $150 billion bad debt problem plaguing the country’s banks.

The move comes about two weeks after the Indian government changed rules giving the central bank greater power to deal with bad loans.

Among the plans announced late on Monday, the RBI said it is reviewing and would make necessary changes to current guidelines for restructuring of stressed loans. It is also working on a framework to help “facilitate an objective and consistent decision-making process,” for cases that can be taken to insolvency courts.

In a bid to avoid borrowers shopping around for credit ratings, the RBI said it is “exploring the feasibility of rating assignments being determined by the Reserve Bank itself and paid for from a fund to be created out of contribution from the banks and the Reserve Bank”.

The RBI did not spell out how this new system would work, but some tentatively welcomed the move as a positive step.

“So far we had to notch down a corporate if its rating was done by a less-reputed rating agency. But now the RBI’s criteria on rating assignment should help us get better clarity on how to scale the ratings,” said a senior treasury official at a private sector bank.

Slower economic growth and in some cases profligate lending practices have been blamed for the surge in bad loans, with more than 20 banks majority-owned by the government holding the bulk of the bad asse

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