Banks given new powers to deal with bad loans: Raghuram Rajan

The Reserve Bank of India has passed on powers to state-run banks to deal with the major issue of their non-performing assets (NPAs), or bad loans, and is now in the process of monitoring their implementation, RBI Governor Raghuram Rajan said on Friday.

"Much of the last three quarters have been spent devising powers for banks to deal with the issue of their stressed assets," Rajan told reporters here following a meeting here of the central bank's board of governors.

"A whole lot of mechanisms have been devised, including allowing banks to take over entire (defaulting) companies. Now we are seeing how these are being implemented.

Explaining that the mechanism devised was "not to postpone the day of reckoning", but to deal with the problem of stressed assets, Rajan said the dialogue with banks, on a framework to restore the health of the banking system, was an ongoing process.

"By March 2017, the entire process will be completed," he said.

Without commenting on specific cases of default, the RBI governor said the banks had faced many "impediments" in realising action on recoveries, adding that "large promoters particularly" have created a system of impediments to bank action.

"So we have given them (banks) new powers to accelerate the process of recovering from the system," Rajan added.

Speaking earlier at the Presidency University here, he warned corporates against ill-effects of over-borrowing, saying debt is like "dynamite" which can harm with its potentially damaging nature.

"Debt is very much like a dynamite. It is an instrument which is very useful in right places and explosive in others," he said.

Rajan also said the RBI is keeping a database that is being shared among banks to check over-borrowing by large corporate houses.

The government plans to set up a high-powered committee to deal with the issue of non performing assets (NPAs) or bad loans of state-run banks, Department of Financial Services Secretary Anjuly Chib Duggal told reporters in Delhi late last month.

The gross NPAs of public sector banks increased to 6.03 percent at the end of June 2015, compared with 5.20 percent in March 2015.

Finance Minister Arun Jaitley has allocated Rs.7,940 crore in the Budget in this fiscal for the recapitalisation of public sector banks.