The deputy governor of the Reserve Bank of India (RBI), S S Mundra, held banks responsible for the large number of ‘sick’ micro, small and medium enterprises (MSMEs). Mundra, who was speaking at the 13th convocation of the Pune-based National Institute of Bank Management (NIBM), also said the banks have not paid enough attention to this sector.
“At RBI we continue to feel somewhat dismayed that the sector is not getting the kind of attention that it needs to get. Particularly in helping them to deal with the period of strain which always come in the life of enterprises,” he said. Last year, Mundra said the RBI had come up with guidelines for banks to have committees in every district where these enterprises could go to put up their cases. This he said followed the legislations brought forth by the Government of India last year for rejuvenation of the sector. “It is really upsetting to see some of them are not even aware of the legislation. Some who are aware have not put up the set up,” he said. The sector, Mundra said, had potential for growth and bankers should help them. Banks have not used the tools to help the sector in terms of automatic enhancement of term loans, he said.
Asset quality in the banking system according to the top banker remains to be an area of concern especially in case of public sector banks. “We have mentioned that there are several tools which are available if required we will not be unwilling to look at other possibilities,” he said. The area has seen serious engagement between the RBI and the government and forbearance in the matter was a complete non-possibility, he said.
In the new supervisory cycle which has just commenced, the RBI is going to pay close attention to the efforts put in by the banks to implement the guidelines of marginal cost of funds based lending rates (MCLR). The RBI, had introduced MCLR around a year-and-a-half back as the new framework for lending rate. “We have observed that there is an element of non transparency in the calculation of the MCLR. Also when MCLR was announced it was expected that there would be clear migration from MCLR to base rate and the borrowers would be given the fair opportunity about this migration,” he said.
Taking the example of an unnamed bank whose 70 per cent of the floating rate was linked to base rate, 28 per cent to base rate and 2 per cent to other rates, he said the bank was required to revise MCLR rate every month and base rates every quarter. “What we found was that the MCLR was reduced substantially but base rates was hardly reduced,” he said.
Touching on the topic of large corporate exposure, Mundra said 40 per cent of the exposures were given to the unrated entity. “These entities can be off shoot of the corporoates like special purpose vehicles etc,” he said. Mundra advised lending community to search for proxy ratings for such communities before lending.
He said most of the banks had failed to establish their internal ombudsman. “Private and foreign banks have better internal ombudsman mechanism in the banking sector,” he said. Non adherence to the guidelines of the RBI regarding formation of an internal ombudsman would be viewed seriously with Mundra saying it would attract financial penalty also.