RBI board to hold talks on stressed assets, NBFC regulatory norms

The board, headed by Shaktikanta Das, will hold talks on the contours of revised norms on stressed assets after the Supreme Court had quashed RBI's circular

The Reserve Bank of India’s central board is set to meet in Chennai for two days beginning Monday to discuss the most comprehensive agenda after Shaktikanta Das took over as governor in December. 

The discussions will range from the revised norms for resolution of stressed assets to tightening of regulatory norms for non-banking financial companies (NBFCs), according to RBI sources. 

The board, headed by Das, will hold talks on the contours of revised norms on stressed assets after the Supreme Court had quashed RBI’s circular, issued on February 12 last year, on stressed loans’ recognition and resolution. 

The RBI’s quashed norms was related to large borrowers of over Rs 2,000 crore. The norm mandated banks to classify even one day’s delay in debt servicing as default and refer an NPA account for insolvency proceedings within 180 days.

“Early recognition is important for banks. The biggest lesson from the Jet Airways episode is that lenders have to act quickly, otherwise the resolution process goes for a toss. The board meeting will discuss all of this,” said a person aware of deliberations regarding the RBI’s new circular.

The RBI had issued the February 12 circular last year without discussing it with its central board — a move that had irked the central government, leading to some fissures between RBI and the finance ministry.

Significantly, the RBI central board will also hold discussions on tightening regulations for the NBFC sector, which is facing issues such as cash crunch, over-leveraging, excessive concentration and “massive mismatch between assets and liabilities”, as highlighted by corporate affairs secretary Injeti Srinivas in an interview few days back.

The RBI governs the NBFCs with “light-touch regulations” at present. “But the recent crises, which we are seeing among NBFCs, makes RBI believe that a light-touch regulation doesn’t work well,” the source, cited above, said.

Late last year, former chief economic advisor Arvind Subramanian had called for an asset quality review (AQR) for NBFCs on the line of a similar exercise undertaken on commercial banks in 2015. The RBI had felt that banks were underreporting stressed assets and the AQR exercise led to ballooning of losses for public sector banks.

The board will also hold talks on strengthening supervision related to banks in a bid to avert a big frauds such as the one which was unearthed in Punjab National Bank (PNB) in January 2018. After the alleged fraud worth over Rs 14,000 crore was reported in PNB by group of companies belonging to Nirav Modi and Mehul Choksi, RBI had set up an expert committee headed by Y H Malegam — the longest-serving RBI board member — to “look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the RBI’s supervisory assessment, and the steps needed to prevent it”.

“The committee’s report will be discussed by the RBI board,” the source said.

The RBI’s central board will also likely deliberate upon the recommendations of a report submitted by former UIDAI chairman Nandan Nilenkani on “deepening of digital payments”.