On one hand, there is pressure from all quarters to resolve the acute NPA crisis facing Indian banking sector and the Reserve Bank of India (RBI) is working overtime instructing banks to come up with early detection of such cases and expeditious resolution.
On the other hand, members of all India Bank Officers Confederation (AIBOC) have asked RBI to roll back its recent notification in relation to bad debt recognition norms.
The apparent rationale / concern behind AIBOC’s demand is that the implementation of the bad debt recognition norms could develop a financial turmoil that the nation cannot afford and have ill effects on the banking system and economic development prospects.
The RBI has dispensed a circular to the banks directing them to classify certain accounts as default following the period of 91 days within such period no debt servicing had begun.
AIBOC opinion is that the implementation of the circular will take away the breathing space privilege of the public and private banks in the matter of postponement of bad debts and more importantly it would create a net loss of INR 1 lakh crore which is a bad omen to the banking and financial system of the India.
Small and medium firms are facing cash crunch as the flow of capital go severely hit by the de-monetization and GST policies is also another factor that contributed to the rise of demand.
AIBOC demands for extension of 90 days period to 180 days for the non-performance asset recognition for loans extended to the borrowers.
It is evident that India cannot afford another financial turmoil or cash crunch, in response to the demand of the AIBOC, the RBI need to revisit the norms and tweak them (if needed be) in the best interest of the banks survival and economic interest of the nation or else it will daunt the prospect of reviving the crisis hit banking system as a consequence of flurry of bank frauds and lead to close down of numerous small/medium firms causing loss of livelihood to millions of people.
Research inputs by Paruchuri Baswanth Mohan
**********************************************
About the Author:
Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.in