Banks should move away from restructuring loans: Chakrabarty

Chakrabarty was addressing Bancon,the annual banking conference here. On restructuring of large accounts by the corporate debt restructuring CDR cell,Chakrabarty said banks need to be more stringent on large corporate accounts and liberal to small borrowers.

The deputy governor added there needs to be an independent monitoring of the CDR cell and that the bias towards restructuring large accounts must be avoided.

In the short-term,Chakrabarty said banks must not only insist on equity participation of the promoter during restructuring,but also assess the source of such equity.

In the aftermath of the global financial crisis in 2008-09,the RBI had allowed banks to classify restructured loans as standard assets,unlike earlier when such a loan was labeled as a non-performing asset.

Indian banks total restructured accounts have touched a massive Rs 3.25 lakh crore by June 2013,said RBI executive director B Mahapatra,speaking at the conference. Of this,around Rs 2.7 lakh crore is through corporate debt restructuring.

Till March 2010-11,things were manageable,as we had around Rs 1.10 lakh crore in restructuring,but now if you see,things are quite out of control, Mahapatra said.

Due to the lackadaisical approach of banks towards credit appraisal,nearly 50 per cent of the reduction in NPAs has been through write-offs,Chakrabarty said.

He also pointed out that banks extended credit to sectors having high levels of non performing assets NPAs despite the risks involved.