oppn parties New Lending Norms Will Bring Transparency & Reduce NPA's

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  • India becomes the first country in the world to make flashing of anti-tobacco warning on shows on OTT platforms
  • BJP says that by targeting PM Modi on his visits abroad, Rahul Gandhi is denting India's image
  • Nepalese Prime Minister PK Dahal Prachanda arrived in India on a 4-day official visit in whihc border issues and several others contentious issues will be discussed
  • Even as Home minister Amit Shah tours Manipur and holds peace talks, violence continues in the state after a lull of one day
  • PM Modi says that boycott of Parliament inauguration by some opposition parties was an insult to the nation
  • Allahabad HC upholds Varanasi district judge's order that petition for worshipping Shringar Gauri in Gyanvapi mosque is maintainable and can be heard
  • Rahul Gandhi says if PM Modi were to meet God, he is such a 'specimen' and know-all that he would start explaining to God how the universe functions
  • Deloitte raises flags in Adani Ports' dealing with three entities regarding disclosure of facts
  • Centre meets the fiscal target of 6.4% in FY23
  • Data released by NSO shows India's GDP grew at 6.1% in Q4 and 7.2% in the full year in FY23
  • IOC takes cognizance of police action on wrestlers, asks IOA to protect athletes
  • World Rapid Chess champion Magnus Carlsen says India is doing a lot of right things and will soon emerge as a powerhouse nation in chess with scores of talented youngsters
  • Thai Open badminton: PV Sindhu & K Srikanth ousted, but Kiran George stuns third seed Shi Yu Qi 21-18, 22-20
  • The lone Congress MLA in West Bengal, Bayron Biswas from Sagardihi, who won in a byelection recently, joins Trinamool, Congress says such 'poaching' not good for opposition unity
  • PM Modi says every move of his government is guided by the wish to improve the lives of the people
Excellent GDP growth: Q4 at 6.1% and FY23 at 7.2%, beats all estimates
oppn parties
New Lending Norms Will Bring Transparency & Reduce NPA's

By Sunil Garodia
First publised on 2016-08-30 13:50:52

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
RBI tightens lending norms for banks
The Reserve Bank of India (RBI) has tightened corporate lending norms. It has announced two measures last week that may raise the cost of lending but will protect banks from NPA’s. In the first measure, banks will have to make higher provisions for lending beyond the prudent norms set by the RBI. In doing so, they will have to block more capital. They will also have to report why they exceeded the exposure limit. “Group entities” have been clearly defined and formats have been prescribed to calculate the exposure to a particular group. This will make it difficult for banks, as well as companies, to fudge data.

Qualitative criteria to identify “group entities”
In the second measure, qualitative criteria have been tagged with quantitative to ensure that risk exposure is not exceeded in a circuitous way. While calculating this, banks would have to look beyond the face value of the figures to examine whether two entities are so economically dependent on each other as to be considered “group entities.” It will make it tough for over leveraged groups to obfuscate data and take loans in excess of what is prudently available for them.

Non-rated borrowers will get loans at higher cost
Then, the RBI has also asked banks to assign a higher risk weightage to non-rated borrowers. If exposure to non-rated borrowers is more than Rs 200 cr, banks will need to assign higher risk weightage to such borrowers. This will increase the cost of borrowing for them, which in turn will act as an incentive for them to get rated. This measure will also have to be applied in case of companies that were rated but have lost the rating.

Financial health of company the new barometer
These lending norms taken together will dynamically change the way banks lend money. They will bring transparency and bribing senior bank officials to get loans cleared will no longer work. In the past, companies like Bhushan Steel were accused of having bribed the former MD of Syndicate Bank to get loans worth crores despite not having their financial data in order. If these measures were in place earlier, Vijay Mallya would not have managed to fool the banks with a labyrinth of companies. The best thing about these measures is that they will create a level playing field and instead of the borrower’s pedigree or connections, the financial health of his company will be the barometer in providing banking loans. They will also ensure that discretionary powers of bankers will be curtailed and NPA’s will gradually go down. But all this will only happen if governments do not force the banks to relax norms in lending to politically sensitive sectors, like infrastructure, where future policy changes might encourage defaults.