RK Dubey,chairman and managing director,Canara Bank,says banks are taking a tougher stance against corporate debt restructuring (CDR) with the RBI looking at the overall macro-economic and systemic angles while tightening the norms. In an interview to George Mathew,Dubey spoke about bad loans,interest rates and credit offtake.
How do you interpret RBIs move to tighten CDR norms?
They want to discourage frequent restructuring done by banks and corporates. If we have to make 5 per cent provision for restructuring,we have to make 15 per cent provisioning for NPAs. They are reducing the gap and discouraging it. We are taking a tougher stance now against those who want to make it the easy road. We will consider in some accounts on a case-by-case basis.
Do you think the CDR norms are stringent?
It was 2.75 per cent earlier. The regulator was wise to increase it. As I am a party involved,I always want it to be as less as possible. But the regulator looks it at from the macro angle and systemic angle. All over the world,restructured assets and NPAs are clubbed. In our country,some (borrowers) want this as a way out. Maybe they (RBI) want to cover this gap in two or three years… so that this gap is not there.
Is the rise in CDR requests due to poor appraisals?
Its not because of weak appraisals. Cash flows were affected. Money cycle has slowed in the economy. Thats why production is less,cash realisation is less and sales are less.
Do you see further rate cut by the RBI?
Theres scope for further reduction in rate cut. At least 50 basis points cut in one or two installments. But inflation has to remain where it has gone down.
How is the credit offtake scenario? Why are deposit rates not falling?
Credit demand is there from all sectors,including SMEs and retail But people are afraid. Thats if you lend in this market,deliquencies will be more. If you do due diligence properly,credit goes up. Deposit growth is not there as it used to be. If theres free flow in the liquidity,deposits will become easy and rates will come down. Thats why theres a demand from our side to reduce cash reserve ratio.
How are you tackling bad loans?
We have been able to tackle this stress with credit monitoring and reaching out to all the borrowers which are NPA or which are going to be NPAs,on a monthly basis. We have intensified and strengthened our credit monitoring system so that we know which are the accounts that can be sustained,helped and rehabilitated. The NPA ratio has come down from 2.76 per cent in December to 2.5 per cent. We are expecting it to be 2.3 per cent by June. We are hopeful to keep our gross NPAs at 2 per cent.
How are stressed sectors doing now?
It was across the board. Its not restricted to any particular sector. In infrastructure,it (stress) was there. In power,after restructuring in Discoms,we are on track. In the road sector,in some accounts stress is still there because of some environment ministry clearance for which the finance minister went from place to place and now they are trying to plug the gap.