Don't outsource loan processing: RBI

Concerned over the rising number of loan default cases, the Reserve Bank of India (RBI) on Monday warned lenders against outsourcing their credit processing activities to third-party entities.

“We encourage the banks that whatever is the non-core activity it should be outsourced. Let me tell you credit processing is not a non-core activity. I would say it is most core activity of a banker,” RBI Deputy Governor S S Mundra said here at an Assocham event.

“If credit processing is also outsourced then I think it will lead to a kind of situation what we are witnessing now,” he said, hinting at the mounting bad loans in the banking system.

According to data made available by RBI, the gross NPAs (non-performing assets) of public sector banks (PSBs) stood at Rs 2,60,531 crore, as on December 2014.

The total number of defaulting borrowers, who had dues of Rs 10 crore and above at the end of September 2014, stood at 2,897, with total dues of Rs 1.60 lakh crore.

The deputy governor also said there were no differences with the government over setting up of an agency for raising public debt. “We have been telling there are no differences... where is (the) question of sorting out?” he said when asked if all the differences between the government and RBI on setting up of a Public Debt Management Agency have been sorted out. On composition of a Monetary Policy Committee, he said it is in the process of discussions with the government.

Talking about imprudent and non-cooperative borrowers, wilful defaulters, Mundra said, “It is important that the errant borrowers are quickly brought to book and recovery proceedings be completed as early as possible.” A non-performing account of whatever origin and pedigree is a drag on the banking system and increases the cost of intermediation, which pinches an honest borrower the most, he said.

It is important for the system to weed out the unethical elements at the earliest opportunity to ensure the credibility and the efficiency of the credit system in the country, he said.

“Several attempts are already underway, one of which is the establishment of a central fraud registry, which will enable quick sharing of information on entities found to be defrauding banks,” Mundra added.

RBI and IBA (Indian Banking Association) together have also taken upon themselves the circulation of “caution advices” relating to all types of frauds, including those pertaining to loans and advances, he said.

Cautioning banks against a herd mentality in rushing to fund specific sectors, Mundra asked them to assess credit risks before giving loans to sunrise sectors.

“I have seen herd mentality in banks, (to fund) some so-called sunrise sectors, where everyone rushes to finance that sector,” he said.

On unseasonal rains and hailstorm in Northern India, Mundra said it is difficult to gauge its impact on inflation and no straight formula can be used to ascertain this.

Asked whether RBI is contemplating a cut in cash reserve ratio (CRR) to prompt banks to cut lending rates, Mundra said, these tools are used for a better macroeconomic situation.

“As and when there is need RBI will cut CRR rate,” he said.