Banks must come up with a loan restructuring mechanism for individuals and small businesses too, said K. C. Chakrabarty, Deputy Governor, Reserve Bank of India.
He was speaking at a seminar on corporate debt restructuring organised by Centrum Capital. He blamed banks for being biased towards restructuring loans of only privileged borrowers (read: corporate borrowers). “Banks must have a structure to recast debt of individuals and the small-scale industry… they cannot leave it to the branch manager to do it,” he said.
Chakrabarty said data show that public sector banks accounted for bulk of the loan restructuring.
The Deputy Governor said it is a myth that only poor economic conditions are responsible for the jump in debt restructuring. He said some borrowers had borrowed heavily during economic boom. This, according to him, got companies into the restructuring web.
He also said that some banks did not use proper project appraisal techniques for taking lending decisions. For instance, while lending to infrastructure projects, banks did not look into factors such as environmental clearance, coal linkage, and land acquisition. This led to problems of repayment. Normally, about 20 per cent of the total restructured accounts become non-performing accounts for the banks. Not all the NPAs result in loan losses, though.
INVOLVE PROMOTERS TOO
There should be no stigma attached to a non-performing asset, Chakrabarty said. “We must change” the way restructuring is perceived. At the same time banks must help corporates with restructuring, if they face a crisis due to external factors.
He questioned the behaviour of top executives of companies that are undergoing restructuring. “Are they taking a pay cut? Are they using public transport to travel?”
He said that promoters must be asked to bring in certain portion of money as equity before the restructuring exercise. He also said that the entire CDR exercise must be completed within 90 days.