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Saturday, August 15, 2020

Give one-time recast to all borrowers: RBI’s Central Board director

Satish Marathe, director at the RBI’s Central Board, has also called for government to reduce its holding in state-owned banks to 26 per cent and not go for privatisation of the banks.

Written by Sunny Verma , Sandeep Singh | New Delhi | Published: August 1, 2020 12:22:21 am
rbi, rbi on loan accounts, rbi news A sign for the Reserve Bank of India (RBI) sign is displayed inside central bank’s headquarters in Mumbai, India, on Thursday, Feb. 6, 2020. India’s central bank left interest rates unchanged for a second straight meeting, while keeping the door open for more easing to support the economy when inflation eases. (Source: Bloomberg)

The Reserve Bank of India should provide a one-time restructuring facility to all loan accounts irrespective of time and category of borrowers, said Satish Marathe, director at the RBI’s Central Board. The demand comes ahead of the completion of the six-months moratorium on August 31 and is in line with growing concerns on expected rise in non-performing in the year ended March 2021. Marathe has also called for government to reduce its holding in state-owned banks to 26 per cent and not go for privatisation of the banks.

All accounts that came in stress from April 1, 2019, should be given an opportunity for one-time restructuring without any downgrade. “One-time restructuring for all accounts, irrespective of the time or category of borrowers, we should give this facility. This I have said on the background of a continuous slowdown of more than two years. Lockdown came on the back of this continuous slowdown, that has put our economy in further distress leading to an unprecedented situation,” he said. “We wrote to the Finance Minister and Prime Minister also (as the founder member of NGO Sahakar Bharati)…because I have been interacting with several MSMEs, small and big urban cooperative banks.”

Earlier, in its financial stability report, the RBI had projected that in a “very severe stressed scenario”, the gross non-performing assets of the banking sector could rise to as high as 14.7% of total loans by March 2021. Even under the baseline scenario, it projected that gross NPA could rise to 12.5 per cent. As of March 2020, the ratio stood at 8.5% of total advances.

Stating that public sector banks should not be privatised, Marathe said that the government should consider change in ownership structure and management of public sector banks without fully privatising them. The government should keep its stake in public sector at a minimum of 26 per cent and rest be sold to retail investors and employees to create a new ownership structure that promotes efficiency, he said in an interaction with The Indian Express.

He also called for bringing employees “skin in the game” and argued that employees of state-owned banks should be given significant stock options and shares to create a sense of ownership. “That is how some of our financial institutions as we go ahead.” Huge amount of public money has been invested in public sector bank over the years and therefore we should not hand them over to the private sector because “privatisation is not the solution,” he said. Public sector banks are most need to provided services to many poor people who are still out of the organised banking system.

“What we need is a new ownership and management structure. That is what is absolutely necessary. Government holding can be brought down, retail holding of the common Indian citizens increased very substantially. With the powers that the Reserve Bank has, nobody can corner these banks…Government ownership should not be less than 26 per cent,” he said. The government should have a big say in management but it can reduce it stake in public sector banks. The government’s current view is that its stake in state-owned banks will not fall below 51 per cent.

India Inc has been pushing for extension of the moratorium further or a one-time loan restructuring plan which would allow borrowers to renegotiate loan terms to extend the repayment cycle and cut loan rates. The RBI had last week warned against a spike in NPAs to 14.7 per cent of advances in a worst case scenario in the current fiscal.

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