Letters: Viral's message

With reference to Anup Roy’s report, “Viral suggests 2 AMCs to tackle bad debt” (February 22), it is comforting that the transparent approach of the Reserve Bank of India (RBI) in policy formulation, which evolved during this decade, is being strengthened by the central bank’s deputy governor. The following observations made by Acharya carry a significant message for all stakeholders:

“Only a bank that fears losing its deposit base or incurring the wrath of its shareholders is likely to recognise losses in a timely manner. In many of our banks, such market discipline is simply not present at the moment. In others, even if some such discipline is at work, banker horizon is excessively short until the end of the CEO’s term.”

“Banks lobby for regulatory forbearance; perhaps, some loan prospects have turned sour due to bad luck, but beyond a point, concessions in recognising losses just end up being a strategy of kicking the can down the road and leaving them as legacy assets for the next management team to deal with. The sectoral concentration of losses substantially amplifies this problem.”

The message: The RBI is not comfortable with the hit-and-run or first-aid approach of handling problems faced by the financial system; an overhaul encompassing the structure, resources and management is needed to come out of the current situation.