Banks biased against SMEs, agri sector in debt recast: RBI

Last Updated: Sat, Aug 11, 2012 18:51 hrs

Banks are giving preferential treatment to the corporate sector in debt restructuring, and tend to ignore the retail, agriculture and small and medium enterprise (SME) sectors, which are also the victims of economic downturn, according to Reserve Bank of India (RBI) Deputy Governor, K C Chakrabarty.

“Data suggests that banks are biased while restructuring. Those who can lobby and those who can hire consultants are getting better deals,” Chakrabarty said, while speaking at seminar of corporate debt restructuring.

“Public sector banks have more retail, agriculture and SME book but it’s not reflected in the restructured book, while private sector banks have more corporate book, but the restructuring quantum is very less,” Chakrabarty added.

Corporate loan restructurings surged 156 percent to a record high last financial year, in the wake of economic slowdown and high interest rate.

A recent committee of RBI on debt recast had suggested taking away regulatory leeway of lower provisioning given to loan recast in two years time and suggested high provisioning in the interim. “We are looking into all suggestions received on the draft guidelines on restructuring,” Chakrabarty said.

The deputy governor emphasised the need to have a proper structure to be put in place by banks for debt recast.

“The system needs be put in place at zonal, district and bank level to address the issue and every restructuring need not come to head office,” he added.

Public sector banks restructure their debt in order to avoid addition of non-performing assets (NPAs) in their books. “The banks need to more prudent while restructuring a debt,” Chakrabarty said.

Heavy restructuring has pinched public sector banks, as it was evident from their first quarter results. The country’s largest lender, State Bank of India (SBI), though added only Rs 654 crore in restructured portfolio in the first quarter, took its restructured book to Rs 36,904 crore. It is also close to finalising restructuring package of the loans worth Rs 3,000 crore. SBI’s gross NPA ratio was at 4.99 per cent at the end of the first quarter. Central Bank of India restructured assets worth Rs 2,674 crore in the quarter, taking the percentage of restructures advances to 13.39 per cent of total advances.

“Sincerity of the borrower and viability of restructuring should be ensured before a debt is restructured said Chakrabarty adding that the banks tend to restructure debt without prudent checks,” Chakrabarty said.

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