Commenting on Reserve Bank of India's discussion paper on non-performing assets (NPAs), Soundara Kumar, deputy MD of State Bank of India says although these measures could put pressure on banks in their ability to deliver and to recognise non-performing loans, it is a good move by RBI.
The Reserve Bank today proposed a slew of measures, including incentives to lenders for coming together and tackling an account timely and penalising borrowers with higher interest rates in future for not cooperating for a resolution. The RBI discussion paper is open for public comments till January 1.
"It is a positive for the banks. There is going to be a total change of culture, there will be strict discipline. This is something that we really require in the banking system today."
She added that this move will not only require a mindset change but also technology changes. The existing personnel will need to be trained more to recognise the accounts (NPAs) at the stress stage itself. She is confident that the bank if capable of handling the changes needed with the help of existing staff.
However, she emphasises more clarity is required on time line front.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: We do perhaps need to see some changes even in terms of legislation before all of this is actually implemented. What is this going to mean for the banking sector?
A: This is a good move by RBI. This is going to put a lot of pressure on the banks in their ability to deliver, in their ability to recognise NPAs in time or even the stress in the accounts early enough.There will be a lot of disciplining within the bank which will have to be done and we need to be on our feet all the time. I think this is a very good move by RBI.Initially, it will be difficult to get used to this and sticking to the time schedules but we need to do it ultimately.
Q: Would it mean for you all a big investment in personnel or huge redeployment of personnel? At the moment all the personnel employed in selling loans and selling deposits perhaps you have to redeploy them to after sales service the loans, to chase your borrower after the loan is sold. So, is it a major redeployment of personnel?
A: I don’t think that is right because we do have enough personnel, we do have enough people monitoring the accounts. Infact the special mention account (SMA) system is already in the bank. The banks technology system right from 7 days onwards the irregularity reports are thrown out. SMA-I we have and 30 days and 60 days over dues are thrown and these are very clearly monitored by the personnel at various levels.
I need to also tell you that the existing staff needs to be trained more and they should be trained to look for these signals and then also recognise early. I think it is a mindset change which is required rather than deployment of more personnel.
Second thing is some technology changes we may have to do because as RBI has said some of the quantitative factors are recognized by the system as it is but there are certain factors like if a BG is invoked or if a LC is devolved those kind of things are not really captured by the system right now these are manual entries.So, if we use more technology I don’t think there would be a need to put more people on the job the existing people with proper training and the use of technology to suit these needs, I think we are quite capable of handling this as of now.
Q: Do you think there are any pitfalls in these draft norms or do you think more clarification is required from the RBI before banks go ahead and implement these draft norms?
A: The time period which they are saying is about 30 days, plus 30 days, plus another 15 days. Somehow there is a slight clarity required there because if it is more than Rs 500 crore then they are saying there will be an internal evaluation committee which needs to look at it. So, I am assuming that that means you get another 30 days beyond that.
The timelines need a little more clarity. However I think 75 days is a bit tough for the banks. Initially may be RBI could make it 90 days and then may be bring it down to 75 over a period of time because the TEV (Techno Economic Viability) study requires a little longer time. If it is a complex case the TEV study might require a longer time.
Q: If these rules are implemented as is would you expect that initially there could actually be a rise in NPLs because the system is a little more strict? Would there be early recognition of NPLs for the system? How should an investor look at it?
A: I don’t think the market should be worried about it because as it is the system does recognise the NPAs fast enough. What is actually now required is at the stress stage itself we recognise this account and start acting fast. I think it is a positive for the banks because if we act fast then our ability to save the account, restructure and make it working is greater – the probability is more.Even assuming we do go for a recovery the earlier we do our recovery our ability to realise based on the assets which are available is more. It is a positive for the banks. There is going to be a total change of culture, there will be strict discipline. This is something that we really require in the banking system today.
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