IBC, new stress recognition norms bode well for financial stability, says RBI Deputy Governor Viral Acharya

Mumbai: RBI Deputy Governor Viral Acharya on Tuesday said initiatives like Insolvency and Bankruptcy Code and norms for prompt recognition of bad loans bode well for financial stability despite short-term pain.

In the foreword of the RBI's Financial Stability Report, Acharya also regretted that amid ongoing churning in the financial sector, governance reforms in the beleaguered public sector banks (PSBs) have taken a backseat.

Domestically, he said the economy appears to be gathering strength although global commodity price swings and turbulent capital flows are a constant reminder to our fast-growing economy that there can be little scope for complacency, if at all any.

Some of the structural vulnerabilities of the banking sector in the form of legacy impairments are finally being tackled headlong, Acharya said.

Viral Acharya, deputy governor, RBI. Pic courtesy Stern NYU

Viral Acharya, deputy governor, RBI. Pic courtesy Stern NYU

"The revised framework of 12th February for dealing with stressed assets issued by the RBI should incentivise early identification and resolution of credit risk.

"The IBC, 2016 is emerging as the lynchpin for resolving stressed assets in a time-bound manner. These developments bode well for allocative efficiency and financial stability in the medium term even if there is some short-term pain in the process," he said.

Acharya further said the ongoing churning in the financial sector following the operational-risk related incidents and the prompt corrective action (PCA) on under-capitalised banks to prevent further deterioration and gradually nurse them back to health are all inevitable, given the circumstances but need to be monitored carefully.

"At such juncture, the Government's front-loaded recapitalisation programme for the beleaguered PSBs should impart robustness to the financial sector as a whole; however, governance reforms and market capital-raising appear to have again taken the backseat at the PSBs," Acharya said.

Eleven public sector banks under prompt corrective action framework (PCA PSBs) are likely to experience a worsening of their Gross Non-Performing Asset (NPA) ratio from 21 percent in March 2018 to 22.3 per cent at the end of the current fiscal, the central bank said in its Financial Stability Report.

The 11 banks under PCA framework or RBI watchlist of their high bad loans are - IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.


Updated Date: Jun 26, 2018 19:19 PM

Also Watch

Social Media Star: Abhishek Bachchan, Varun Grover reveal how they handle selfies, trolls and broccoli
  • Monday, July 16, 2018 It's a Wrap: Soorma star Diljit Dosanjh and Hockey legend Sandeep Singh in conversation with Parul Sharma
  • Monday, July 16, 2018 Watch: Dalit man in Uttar Pradesh defies decades of prejudice by taking out baraat in Thakur-dominated Nizampur village
  • Monday, July 16, 2018 India's water crisis: After govt apathy, Odisha farmer carves out 3-km canal from hills to tackle scarcity in village
  • Sunday, July 15, 2018 Maurizio Sarri, named as new Chelsea manager, is owner Roman Abramovich's latest gamble in quest for 'perfect football'

Also See