RBI to announce fresh measures to incentivise early recognition and recovery of distressed loans: Rajan

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RBI to incentivise recognition and recovery of bad loans
The Reserve Bank of India (RBI) governor Raghuram Rajan on Friday said that the central bank will announce measures to incentivise early recognition, better resolution, and fair recovery of distressed loans in the next few weeks.

"We could wish for a more effective judicial process or a better bankruptcy system, but while we await that, we have to improve the functioning of what we have. In the next few weeks, we will announce measures to incentivise early recognition, better resolution, and fair recovery of distressed loans," Rajan said at the annual banking event, BANCON on Friday.

Rajan said that RBI will enlist markets in the need of banking as liquid markets will help banks offload risks they should not bear, such as interest rate or exchange risk. "They will also allow banks to sell assets that they have no comparative advantage in holding, such as long term loans to completed infrastructure projects, which are better held by infrastructure funds, pension funds, and insurance companies," Rajan said.

The RBI governor further said that "We will focus on putting real assets back to work in their best use. Here again, you bankers have a critical role to play by fighting the natural incentives that are built in to the system. You have to help those with genuine difficulty while being firm with those who are trying to milk the system. The RBI will help you with every means at our disposal."

Dion Global Solutions Ltd.

Story first published: Saturday, November 16, 2013, 9:30 [IST]
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