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Last Updated : Sep 09, 2017 07:52 PM IST | Source: Moneycontrol.com

RBI must be like Rahul Dravid, not Virender Sehwag, says deputy governor Viral Acharya

Acharya, who joined as the RBI's deputy Governor in January, wants the banking regulator to keep holding fort and be in good shape like Dravid rather than be the aggressive boundary hitter Virender Sehwag.

 
 
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Cricket is country's favourite sport and while the likes of Rahul Dravid and Virender Sehwag have retired from the pitch long ago, senior central banker Viral Acharya hit a sixer when he wanted the Reserve Bank of India to become Dravid rather than Sehwag.

Acharya, who joined as the RBI's deputy Governor in January, wants the banking regulator to keep holding fort and be in good shape like Dravid rather than be the aggressive boundary hitter Virender Sehwag.

He said this sharing a panel with Mahindra Group chief Anand Mahindra and ICICI Bank chief Chanda Kochhar, at the book launch of former RBI deputy governor Rakesh Mohan.

Moderating the panel, Mohan asked Acharya that in the absence of his boss Urjit Patel, RBI governor, he could express what changes would he want to see in his employer.


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To this, Acharya replied, "I think what I would like is to change as a central bank is to essentially... the analogy I give internally in RBI is that I want us to be Rahul Dravid rather than Virender Sehwag. Dravid is about holding the fort, keeping the ship in good shape.

"Sehwag is about first ball six. That is for Anand (Mahindra) to hit and Chanda (Kochhar) to contribute to that. As a central bank, our focus should be on what is the possible stress scenario that we could end up in and whether we are adequately provisioned for that as a central bank and have we brought the banks to provision for that," Acharya explained.

Mohan prodded, "And keeping the finance ministry in control?"

"Yes, you could mean that," Acharya patly responded driving some laughter in the audience.

Elaborating that Acharya said, "The number one thing I'd like to change is that - right now, when banks make loans, entire provisions that the banks do, which is to save for a rainy day, which is am I preparing for the losses that are going to take place, is entirely pro-cyclical. I think, we don't talk about any adequate reserves being kept aside to bear a loss until a loan actually defaults."

Secondly he said, RBI must be more proactive to be counter cyclical in asking banks to make provisions in good times, you have to save for a rainy day rather than start looking for provisions when things have already gone bust.

Today, he said, banks get windows of time to recognise an account as non-performing asset (NPA) "and then, unfortunately, RBI has for a variety of reasons engaged in various forbearance schemes" of giving 18 months or 2 years more.

Banks are currently burdened with mounting bad loans to the tune of more than Rs 8 lakh crore, with public sector banks accounting for over 80 percent of it.

Agreeing that it is part RBI's responsibility too, to internalise and design rules and policies that get banks to internalise their costs of their weak balance sheets when the credit dries up.

Acharya said that while Sebi has mandated that any default has to be announced publicly and informed to rating agencies, we should give banks three months to rectify the account, which if failed must be filed for Bankruptcy. "Period. Chapter closed. RBI should not be in the business of creating restructuring schemes for banks to resolve this company," he added.

Most importantly, Acharya said he wants RBI to be a regulator which is tough on banks when defaults take place so that banks and promoters do not want the default to take place.
First Published on Aug 24, 2017 08:21 am
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