banking policies

Bad loans: New Reserve Bank rules send a clear message to borrowers – pay dues or face action

The guidelines issued on Monday may, however, push up India’s already high non-performing assets ratio.

The new guidelines for recognition and resolution of bad loans, issued by the Reserve Bank of India on Monday, should be taken as a clear message to borrowers: pay your dues on time or face insolvency proceedings. At the same time, these rules – which will come into effect from March-end – are a warning to bankers to clean up their balance sheets.

From the point of view of earnings, the central bank’s move may increase the non-performing assets ratios of banks in general and government-owned banks in particular. A non-performing asset is a loan for which the principal or interest payment has not been paid for 90 days or more. On the other hand, the move will ensure discipline among borrowers and banks, and may improve the operational efficiency of the latter.

The biggest advantage of the proposed framework is that it will keep banks on their toes. Even if a loan is overdue by just 30 days, banks will have to identify it as a special mention account, report it to the Central Repository of Information on Large Credits – a database maintained by the Reserve Bank – and start working on a resolution plan.

According to a Credit Suisse estimate, cited by BloombergQuint in a report on Thursday, the new rules could place another Rs 1.5 lakh crores worth of loans before the National Company Law Tribunal. Banks have already moved the tribunal for the recovery of loans amounting to Rs 3.5 lakh crores as part of the Insolvency and Bankruptcy Code mandate issued by the Reserve Bank in 2016.

Rating agency Crisil said the central bank’s move would strengthen the banking system in the long run. “The revised framework for the resolution of large stressed assets has the potential to herald a big change in the approach of banks to monitoring of exposures and resolution of non-performing assets, and thereby strengthen the banking system,” it said in a note.

The bad loan problem

Indian banks are sitting on a mountain of bad loans. As of September 2017, the total non-performing assets of banks was estimated at Rs 8.4 lakh crores. Crisil estimates that this amount will touch Rs 9.5 lakh crores by March. Simply put, banks are currently unable to recover Rs 10 of every Rs 100 they lend.

A high prevalence of non-performing assets limits the ability of banks to lend. In addition, banks have to set aside money for loans that it expects to go bad. This is called provisioning. Higher provisioning results in lower profitability, and thereby the need for increased capital.

According to a Care Ratings study with a sample of 30 banks, total provisioning for banks in India increased by 69% to Rs 61,200 crores in the quarter ended December 2017. The data also showed that the banks reported a net loss of Rs 154 crores in that quarter compared to a net profit of Rs 10,237 crores in the corresponding quarter in 2016.

Slow recovery

The Reserve Bank, the government and banks have been trying to fix the problem of bad loans since 2015. In recent years, several measures such as Corporate Debt Restructuring, the Strategic Debt Restructuring Scheme, and the Scheme for Sustainable Structuring of Stressed Assets have been taken in this direction but have met with limited success.

The progress on recovery has been tepid. As per a written reply in the Lok Sabha, public sector banks had recovered Rs 39.6 crores till November after filing cases with the National Company Law Tribunal. There are over 2,400 cases pending before the tribunal for recovery of dues. These include some two dozen cases of large borrowers identified by the Reserve Bank as accounting for more than a quarter of the country’s total bad loans.

Recovery through the various Debt Recovery Tribunals has also been slow. Of a total of Rs 67,200 crores in 2016-2017, banks could recover only Rs 16,400 crores (or 24%).

The present system has a major flaw. All banks have to disclose discrepancies in the amount of their non-performing assets if the difference between their reported numbers and the Reserve Bank’s risk assessment report findings exceeds 15%. Private sector banks HDFC Bank, Yes Bank and ICICI Bank have reported such discrepancies in the past. On Friday, the State Bank of India – which controls 20% of the country’s banking assets – also reported a similar, and large, discrepancy.

Such divergence in risk assessment and reported numbers translates into a failure to paint a true picture of India’s banking sector.

The new framework

Bad loans, whether cases of wilful default or commercially unviable projects, have three dimensions – identification, resolution and recovery – that impact the working of all concerned. For recovery, the Insolvency and Bankruptcy Code is in place with a mandate to take decisions in a time-bound manner. However, multiple and overlapping schemes limit the scope of the identification and resolution process.

The new framework has addressed the problem of a generic and time-bound guideline for identification of a stressed asset.

Scrapping all the old schemes, it proposes that banks start insolvency proceedings against accounts with a total default amount of Rs 2,000 crores or more if a resolution plan is not implemented within 180 days of the initial occurrence of default. The Reserve Bank has also warned banks of a penalty if they fail to comply with the new rules.

The rules around resolution plans have also been tightened. Processes involving restructuring or change in ownership for large accounts with loans of Rs 100 crores or more will require an independent credit evaluation by credit rating agencies authorised by the Reserve Bank.

In addition, the rules make it mandatory for banks to submit details of all identified bad loans on a monthly basis to the central bank, a move aimed at bringing about greater transparency.

Bhavesh Shah is a business journalist and financial analyst.

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Swara Bhasker: Sharp objects has to be on the radar of every woman who is tired of being “nice”

The actress weighs in on what she loves about the show.

This article has been written by award-winning actor Swara Bhasker.

All women growing up in India, South Asia, or anywhere in the world frankly; will remember in some form or the other that gentle girlhood admonishing, “Nice girls don’t do that.” I kept recalling that gently reasoned reproach as I watched Sharp Objects (you can catch it on Hotstar Premium). Adapted from the author of Gone Girl, Gillian Flynn’s debut novel Sharp Objects has been directed by Jean-Marc Vallée, who has my heart since he gave us Big Little Lies. It stars the multiple-Oscar nominee Amy Adams, who delivers a searing performance as Camille Preaker; and Patricia Clarkson, who is magnetic as the dominating and dark Adora Crellin. As an actress myself, it felt great to watch a show driven by its female performers.

The series is woven around a troubled, alcohol-dependent, self-harming, female journalist Camille (single and in her thirties incidentally) who returns to the small town of her birth and childhood, Wind Gap, Missouri, to report on two similarly gruesome murders of teenage girls. While the series is a murder mystery, it equally delves into the psychology, not just of the principal characters, but also of the town, and thus a culture as a whole.

There is a lot that impresses in Sharp Objects — the manner in which the storytelling gently unwraps a plot that is dark, disturbing and shocking, the stellar and crafty control that Jean-Marc Vallée exercises on his narrative, the cinematography that is fluid and still manages to suggest that something sinister lurks within Wind Gap, the editing which keeps this narrative languid yet sharp and consistently evokes a haunting sensation.

Sharp Objects is also liberating (apart from its positive performance on Bechdel parameters) as content — for female actors and for audiences in giving us female centric and female driven shows that do not bear the burden of providing either role-models or even uplifting messages. 

Instead, it presents a world where women are dangerous and dysfunctional but very real — a world where women are neither pure victims, nor pure aggressors. A world where they occupy the grey areas, complex and contradictory as agents in a power play, in which they control some reigns too.

But to me personally, and perhaps to many young women viewers across the world, what makes Sharp Objects particularly impactful, perhaps almost poignant, is the manner in which it unravels the whole idea, the culture, the entire psychology of that childhood admonishment “Nice girls don’t do that.” Sharp Objects explores the sinister and dark possibilities of what the corollary of that thinking could be.

“Nice girls don’t do that.”

“Who does?”

“Bad girls.”

“So I’m a bad girl.”

“You shouldn’t be a bad girl.”

“Why not?”

“Bad girls get in trouble.”

“What trouble? What happens to bad girls?”

“Bad things.”

“What bad things?”

“Very bad things.”

“How bad?”

“Terrible!!!”

“Like what?”

“Like….”

A point the show makes early on is that both the victims of the introductory brutal murders were not your typically nice girly-girls. Camille, the traumatised protagonist carrying a burden from her past was herself not a nice girl. Amma, her deceptive half-sister manipulates the nice girl act to defy her controlling mother. But perhaps the most incisive critique on the whole ‘Be a nice girl’ culture, in fact the whole ‘nice’ culture — nice folks, nice manners, nice homes, nice towns — comes in the form of Adora’s character and the manner in which beneath the whole veneer of nice, a whole town is complicit in damning secrets and not-so-nice acts. At one point early on in the show, Adora tells her firstborn Camille, with whom she has a strained relationship (to put it mildly), “I just want things to be nice with us but maybe I don’t know how..” Interestingly it is this very notion of ‘nice’ that becomes the most oppressive and deceptive experience of young Camille, and later Amma’s growing years.

This ‘Culture of Nice’ is in fact the pervasive ‘Culture of Silence’ that women all over the world, particularly in India, are all too familiar with. 

It takes different forms, but always towards the same goal — to silence the not-so-nice details of what the experiences; sometimes intimate experiences of women might be. This Culture of Silence is propagated from the child’s earliest experience of being parented by society in general. Amongst the values that girls receive in our early years — apart from those of being obedient, dutiful, respectful, homely — we also receive the twin headed Chimera in the form of shame and guilt.

“Have some shame!”

“Oh for shame!”

“Shameless!”

“Shameful!”

“Ashamed.”

“Do not bring shame upon…”

Different phrases in different languages, but always with the same implication. Shameful things happen to girls who are not nice and that brings ‘shame’ on the family or everyone associated with the girl. And nice folks do not talk about these things. Nice folks go on as if nothing has happened.

It is this culture of silence that women across the world today, are calling out in many different ways. Whether it is the #MeToo movement or a show like Sharp Objects; or on a lighter and happier note, even a film like Veere Di Wedding punctures this culture of silence, quite simply by refusing to be silenced and saying the not-nice things, or depicting the so called ‘unspeakable’ things that could happen to girls. By talking about the unspeakable, you rob it of the power to shame you; you disallow the ‘Culture of Nice’ to erase your experience. You stand up for yourself and you build your own identity.

And this to me is the most liberating aspect of being an actor, and even just a girl at a time when shows like Sharp Objects and Big Little Lies (another great show on Hotstar Premium), and films like Veere Di Wedding and Anaarkali Of Aarah are being made.

The next time I hear someone say, “Nice girls don’t do that!”, I know what I’m going to say — I don’t give a shit about nice. I’m just a girl! And that’s okay!

Swara is a an award winning actor of the Hindi film industry. Her last few films, including Veere Di Wedding, Anaarkali of Aaraah and Nil Battey Sannata have earned her both critical and commercial success. Swara is an occasional writer of articles and opinion pieces. The occasions are frequent :).

Watch the trailer of Sharp Objects here:

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This article was published by the Scroll marketing team with Swara Bhasker on behalf of Hotstar Premium and not by the Scroll editorial team.