MUMBAI: Reserve Bank of India Deputy Governor K.C. Chakrabarty said on Saturday domestic corporate loan restructurings were not being conducted in an objective manner, saying the process favoured state-owned banks and large corporate borrowers.
Chakrabarty, who handles banking supervision, added the central bank continued to look into suggestions proposed by a panel last month to examine how companies restructure their debt with their lenders.
That panel had recommended higher loan-loss provisions by banks and greater "sacrifice" by founders or controlling shareholders of troubled companies, among other measures.
The rise of bad debt is becoming an issue in India, with corporate loan restructurings surging 156 percent to a record high in the financial year that ended in March, as slowing economic growth proved a drag on borrowers' ability to repay debts.
"Restructuring has not been done in an objective manner. It is heavily biased in favour of public sector banks. It has substantial bias towards more privileged borrowers vis a vis small borrowers," Chakrabarty said in a speech at a conference on corporate debt restructuring.
Chakrabarty also expressed concern that banks would push companies to restructure their debt in order to avoid defaults that would show up as non-performing assets (NPAs) in their books.
Banks have been criticised for too readily agreeing to recast a company's debt, without prudent checks, or providing additional loans to stressed borrowers, often indirectly, to enable them to repay existing loans.
"It appears that effort was more to avoid accounting classified as NPAs, that is our conclusion," he said.
Comments
Comments are closed for this article.