The Reserve Bank of India on Tuesday said it is monitoring stressed sectors in the economy such as power and steel, urging banks and company promoters to ensure deep and appropriate restructuring of viable projects so that they are put back on track.

“There are some important areas that are stressed. The power sector is one. Steel sector is another.

“We are certainly monitoring…and trying to urge that restructuring when done is deep, is appropriate so that projects are put back on track. I think that is what we need for the continuing health of not just the banking system but the economy,” said RBI Governor Raghuram Rajan.

Rajan observed that there are a number of checks and balances in trying to ensure that the NPAs (non-performing assets) that are announced by banks convey the true and fair picture.

“We also supervise banks and go into their portfolios to see whether they have declared the NPAs they should and we examine divergences and bank managements are hauled up where there is divergence.

“And increasingly we are turning towards taking action on such divergences. So it is not that these things get done with impunity….,” he said.

The Governor pointed out that the RBI’s recent actions (on getting banks to constitute joint lenders forum and strategic debt restructuring for revitalising distressed assets in the economy) are attempts to get all players on the same platform to discuss how to put a project back on track in a significant way.

This requires efforts by the banker, promoter, state governments, central government, regulators (electricity tariff etc) for them (the actions) to really work.

“And that is why we have been much less keen on forbearance going forward and saying face up to the reality, you need to do what you need to do – take the medicine, pushing it into the future is going to just create bigger problems in the future,” explained the Governor.

Referring to the thin line between forbearance and flexibility, Rajan said the RBI is for flexibility when it comes to restructuring.

“For example, sometimes there is only a little more to develop in a project and then it can start producing revenues. In that situation, should a bank lend into that project, even if it is a NPA, in order to complete it and put it back on track.

“We have said no problem in lending to a project which is non-performing asset so long as it is meant not to evergreen but to put the project back on track and get it going,” Rajan said.

Pointing out that the 5/25 rule, whereby 25 year loans to projects in infrastructure/core industries come with refinancing option at 5 year intervals, is sometimes derided, the Governor said the RBI is actually examining such cases to make sure it is used for the right purpose.

“The point is not so much again to postpone the problems into the future, to postpone repayment way into the future. In fact, we are insisting that there shouldn’t be significant moratoria on repayment in the 5/25 rule.

“The point, however, is to ensure that what was structured as repayment in a short while for a long project, the 5/25 rule can be extended. So, where there is genuine reason to believe it is a long project, extend it,” said Rajan.

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