RBI Governor Against Artificial Fixing Of Bad Debts

Financial Express-06 April 2014

Raghuram Rajan's hard talk to banks: Stop looking for artificial fixes on bad loans-

RBI governor Raghuram Rajan on Friday asked banks to stop looking for ‘artificial fixes’ in dealing with bad loans and make efforts to ‘fix things up the right way’.

Postponing recognition is not forbearance, he said, referring to banks that had approached RBI to consider treating bad loans with forbearance and postpone recognising these as bad loans.

Rajan said the focus must be on treating performing assets. “I think when we do that, we clean up our balance sheets; the markets will (then) be willing to provide finance to institutions that had these balance sheets and, thereby, create a space in financing. So, let’s not try to find artificial fixes. Let’s go about fixing it the right way,” he said.

“Because I am not telling our banker friends who are working very hard at this point to deal with some of these problems and put the banks back on track. I think the time will tell what distinguishes the men from the boys and women from the girls and the truly good bankers will figure out ways to put their balance sheets back on track, put their banks back on track.”

He said it was a shame that so many people in the country did not have access to banking. “There has to be a way around this. We have to give people good savings products, We have to give people good investment products. Looking inwards, we have to look at what regulations make sense and what don’t make sense,” he said.