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Letter to BS: Recognition, resolution must go hand in hand to improve banks

The uniformity in asset classification and income recognition is of paramount importance in respect of consortium accounts

Business Standard 

Independent directors may take decisions if Govt-RBI standoff continues

This refers to “RBI scrutiny of stressed loans intensifies” (November 28). At a time when arguments are on about the autonomy and accountability of the Reserve Bank of India (RBI), the move to detect deviation and divergence in the recognition of the assets, and accounting the required level of provisions as per the prudential norms will enable banks to initiate corrective action to comply with the norms. The uniformity in asset classification and income recognition is of paramount importance in respect of consortium accounts across the member banks to make sure the financial statements are accurate and highly transparent.

The RBI in its annual inspection of banks has reported large divergence in asset classification. This indicates that many banks resorted to the violation of prudential norms to evergreen the loan accounts. Albeit the strict norms, the ever greening of loan accounts enabled bad accounts to remain under the carpet, and when found by the RBI, it resulted in the steep hike of bad assets. The balance sheet of banks will become clean only if the recognition of the assets is in order. Mere scrutiny of the assets is not the remedy. Recognition and resolution must go hand in hand to improve the health and credibility of a bank.

VSK Pillai, Kottayam


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First Published: Wed, November 28 2018. 23:38 IST
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