Reserve Bank of India deputy governor NS Vishwanathan said the job of banks is not to bail out borrowers whenever they get into difficulties as the primary commitment of lenders should be to depositors. Vishwanathan’s address staked out the position of the central bank on this and other issues, some of them in apparent contrast with the government’s views, and followed comments by fellow deputy governor Viral Acharya on October 26 that had sparked a swift retort from the finance minister Banks are not supposed to be shock absorbers of first resort of the difficulties faced by their borrowers as banks do not have the luxury of delaying payments to their depositors, Vishwanathan said. Vishwanathan also defended RBI’s February 12 circular, which tightened loan-recognition norms and scrapped all existing debt-restructuring schemes for large borrowers since the Insolvency and Bankruptcy Code (IBC) had been put in place. Of course, a bank can renegotiate terms of a loan if circumstances warrant but this must be for a good reason and the bank should recognise the consequent risks, Vishwanathan said. Next time we hear about a bank making efforts to recover loans from borrowers, we should all note to remember it is essentially trying to get back the depositors’ money, the deputy governor said.
The most important objective of the central bank’s Revised Framework for Resolution of Stressed Assets is to alter the balance of power in favour of creditors, something which had been in favour of debtors for long time, he said. He said that resolution plans offered by existing managements were less valuable than they seemed. He also spoke about RBI insisting on stricter standards than Basel norms, referring to complaints that capital requirements for banks are unnecessarily high at 9% rather than 8% under the international guideline. Regulatory capital is meant to serve as a buffer against unexpected loss, he said. He also said that higher CRAR doesn’t necessarily squeeze credit growth but raises hygiene As the insolvency and bankruptcy regime matures, debt recovery and asset quality will get closer to global standards, he said.