Banks moving in the right direction to cut NPAs: Rajiv Takru

Interview with Financial services secretary

Quote: "People are talking of different figures—five, six, seven, eight. But that is not the way these cases are decided and that is not the way it should be decided."

Of the 26 players who applied for a bank licence on Monday, many don’t seem to meet the conditions prescribed by the Reserve Bank of India (RBI), but Financial Service Secretary Rajiv Takru says they are all eligible at the moment, and it is only after a proper examination and verification of their documents that the RBI would eliminate non-serious players and prioritise the serious ones. In an interview with Vrishti Beniwal, he said no decision has been taken yet on how many licences would be issued. Excerpts:   

How many of the 26 applicants you think would be able to meet the criteria laid down by the RBI?

At this stage, anybody who has applied would be considered a serious applicant. Now, the RBI will go through the process of identifying those who meet the criteria out of the 26 who have applied. After that we would know who all have been shortlisted. Then we move on to the next phase where they have to make priorities. So it is only at that stage that a final comment can be passed.

When do you expect the first set of licenses will be issued by the RBI?

It may be issued by the end of this financial year.

Experts are saying hardly six to seven companies would be in a position to get the licence.

The problem in our environment is that we have too many experts. How can anybody draw a conclusion on this without even seeing the documents a company has submitted? This is beyond my imagination. And after the permission is given to set up a bank, the party has 18 months to conform to the conditions. A person who may not be confirming today, but has shown the intention to change or confirm in the next few months would also be considered by RBI.

Is RBI going to put a cap on the number of licences that would be issued or all the applicants meeting the criteria would be given a licence?

There is no policy decision in this regard. People are talking of different figures—five, six, seven, eight. But that is not the way these cases are decided and that is not the way it should be decided.       

How would India Post and Tourism Finance comply with norms such as diversified ownership, setting up of a holding company and reduction in promoter's stake?

I have no idea how anybody is going to meet the criteria because as far as I’m concerned they are all eligible. I have not seen any application. Any judgment about a party can be given after examination of their application. Once it is cross-checked, verified and if it is satisfactory with regard to the guidelines, then we can tell. So if somebody does not meet the criteria or is not capable or does not have the intention of meeting the criteria they will be eliminated.

There is a hurdle for banking aspirants having insurance companies. IRDA Act says insurance company cannot be a subsidiary of subsidiary. But bank licence norms say all banks should be under a holding company which itself is a subsidiary of the promoter group. This is an area of potential conflict. What steps would be taken to address that?

The point has been clarified. When it comes to insurance Irda is final and when it comes to banking RBI is final. If somebody wants to stay in both the sectors then he would have to satisfy both. If you don’t conform to the guidelines of one sector you better stay out of it. So there is no question of conflict.  

A report by RBI report had suggested reviewing all existing licences of banks named in Cobrapost sting as one of the options. What action is being taken in that regard?

Who are you expecting to take the action? Who issued the licences? It is for RBI to decide.

The finance ministry had also set up a committee on the issue.

That committee is looking into the larger issue and it is regularly meeting. Its job is to ensure coordination between different departments of the government. In the past one department of the government would not know what the other department was doing.

Reduction in base rate by banks has not been in sync with the repo rate cut by RBI. Finance Minister is meeting banks on Wednesday. Would you nudge banks to cut rates?

The finance minister has already made his intentions known on this issue. Bankers I’m sure have their own reasons. We don’t nudge; we just discuss.  The issue will be discussed in the meeting tomorrow.  

Talking about non-performing assets, to what extent banks have succeeded in taking action against willful defaulters?

Banks are taking a lot of action. The number of people lining up for relief is substantial. But all these things take time before the results start to show. NPAs will certainly come down. Long time ago we had suggested to them that it should come below 1 per cent of their advances. I think they are moving in the right direction now.

You recently suggested an independent body to review debt recast cases. When would it be set up?

That was just a suggestion to the Indian Banks’ Association that they might want to consider an oversight body. It is up to them to take a call on that.