MUMBAI: The RBI stood its ground despite shrill cries from bankers and bureaucrats to dilute the debt resolution norms introduced on February, 12.
On Wednesday, RBI Deputy Governor N S Vishwanathan gave a point-by-point rebuttal to concerns expressed by lenders, which indicated that changes in the new framework will be nothing.
Reason: The new rules are to ensure that past mistakes of the previous credit cycles ain't repeated.
"We don't want to end up in a similar situation a few years down the line," he emphasised.
Speaking at the National Institute of Banking Management in Pune on Wednesday, Vishwanathan said, "Such timely intervention should be second nature to a bank. Similarly, paying dues on time should be the natural behaviour expected from a borrower. The revised framework seeks to inculcate such a behaviour in both lenders and borrowers."
The February 12 circular knocked down all existing debt resolution schemes and tightened NPA norms, which market watchers say could toss Rs 2 lakh worth loans straight into bankruptcy proceedings. Bankers are scurrying all over saying the revised framework will upset the credit cycle and asset quality due to higher provisions.
According to him, the concerns regarding the one-day default rule were unfounded. "The data shows that a large number of borrowers, even some highly rated ones, have failed on the 1-day default norm. This has got to change," he said clarifying that an account will become an NPA only when it was overdue by more than 90 days and that SMEs are exempted from the norm.
As for the 180-day deadline which gets triggered on the 91st day of default, which the IBA wants it extended by another 30 days, Vishwanathan said, delay in payments was a lagging indicator of the stress in the company, which bankers should be aware even before the default.
"Lenders need to be proactive in monitoring their borrowers and be able to identify financial stress using a combination of leading indicators and renegotiation points in the form of loan covenants rather than wait for a borrower to default. Such early identification of stress and loan modifications in response would provide sufficient time for lenders to put in place the required resolution plan," he said.