RBI raises concerns about bank loans, debt recovery

MUMBAI (Reuters) - The Reserve Bank of India (RBI) said on Thursday it would focus on the monitoring of banks' asset quality and help improve the poor debt recovery process in the country, underlining the central bank's growing discomfort with rising bad loans.

Bad debts have surged in India as economic growth has slowed to a decade low, while investments have also stalled.

The focus on asset quality comes as bad debts at Indian banks have nearly doubled since 2009 to 4.2 percent of total loans at the end of September, central bank data showed, while debt restructuring is also at a record high.

The RBI said the situation required "priority attention".

RBI has advised banks to put in place mechanisms for early detection of signs of distress and to use early warning signals to avoid non-performing loan. It has also advised banks to strengthen information sharing, making it compulsory to receive and share information on borrowers before loans are approved.

"In the short term, the stress on banks' asset quality remains a major challenge," the RBI said in its "Trends and Progress of Banking in India 2012-13" report issued on Thursday.

"Going forward these issues will engage priority attention of Reserve Bank," it added.

The central bank also cited an urgent need to speed up operations at fast-track government courts for lenders that deal with cases involving the recovery of debt called Debt Recovery Tribunals and Asset Reconstruction Companies.

RBI said it was necessary to collect credit data and to examine large common exposures across banks to help create a central repository on large credits.

Rising bad loans have made banks wary of lending, impeding the supply of domestic credit.

(Reporting by Swati Pandey and Neha Dasgupta; Editing by Jacqueline Wong)