New RBI governor Shaktikanta Das met with chiefs of Public Sector Banks to understand their concerns regarding various issues. The PSU bank chiefs raised the issue of the challenges they face on account of the February 12 circular that forces them to classify all stressed loans as defaulters. They also raised the issue of cost of funds.
The RBI governor also discussed liquidity issues and measures required to increase credit to small and medium enterprises, which have seen a decline in their share of overall bank lending.
On February 12, the RBI under former governor Urjit Patel issued a circular that took away all headroom that banks had to restructure a loan without classifying it as a non-performing asset (NPA). The RBI’s rationale was that since there was a new law that enables banks to recover money, there was no need for a special dispensation.
According to banks, the circular did not allow them to take a call on loans where better value could have been realised through restructuring. Also, the norms require that even if there is a one-day delay from the deadline for classifying loans as NPAs, banks will need to make provision on the loan. In many cases where the borrower is dependent on government undertaking for payments, there is a delay.