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RBI needs to be proactive PDF Print E-mail
Thursday, 23 August 2012 00:00
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Banks are too lenient with big firms, including realty

Under normal circumstances, the finance minister asking bankers to pressure
real estate firms to lower prices is a bad idea, to be frowned upon. But
given that the same builders have taken over a lakh crore rupees as a loan,
and are looking for all manner of sops from banks, as the FM has suggested,
the banks have a role to play. If builders are not liquidating the huge
inventories they are sitting on, this is because banks are being lenient
with the borrowers. After all, a few years ago, when real estate firms
first got into trouble and wanted the banks to go easy on them, many were
talking about going in for reasonably priced housing – you hardly hear any
of this talk today, while the bank loans continue to remain high.

What's even more damaging than the FM having to teach bankers their jobs,
of course, is that RBI is aware of much of this, and more. Just last week,
RBI Deputy Governor KC Chakrabarty exposed PSU banks and said they were a
lot quicker to restructure loans belonging to big corporates than those of
SMEs or even agriculture – a Credit Suisse report points out the aggregate
debt of ten corporate groups has jumped 5 times in the past five years and
now equates to 13% of bank loans and 98% of the banking system’s net worth.
If such concentration risk isn't enough to get RBI to take another look,
Chakrabarty said it “appears that the provisions of the CDR mechanism have
not been used very ethically and judiciously”. While saying that RBI's
forbearance has meant banks haven't done their due diligence while
restructuring loans and that “many unviable accounts were restructured by
establishing viability only with some kind of financial engineering”, the
deputy governor has given very interesting data as well. While the ratio of
restructured standard advances to gross advances is 1.45% for agriculture,
2.30% for micro and small enterprises as compared to a whopping 9.34% for
medium and large industrial units. It's not enough for the deputy governor
to make such statements, RBI needs to follow this up with some serious
action.

 

 

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