Page 15 - Banking Finance July 2023

RBI CORNER

gins as they entail higher interest This is the first time that RBI has come The RBI started withdrawing from its
rates. out with compromise norms for set- pandemic period accommodation in
tling with wilful defaulters. Earlier RBI April last year. Some market watchers
"Some action from the RBI on unse-
norms had focused on ensuring that were expecting a switch to neutral
cured lending, credit cards, etc. could
the settlement amount is not less than stance in this month’s policy as infla-
be seen," a senior source aware of the
the net present value of the security. tion came closer to the target, while
central bank's thinking said. "Excessive
Banks were also barred from restruc- growth slowed amid a tighter policy
growth is the first sign of potential
turing loans of wilful defaulters. This and weakening global economy.
delinquencies."
rule continues and banks cannot give
“The thinking appears to me that finan-
None of the sources wanted to be the wilful defaulters fresh credit.
cial firms and professional forecasters
named because they are not
understand the stance well enough and
authorised to speak to the media.
Rate-setting panel mem-
so there is no need to change it,”
"We can expect the RBI to increase
ber asks RBI to talk clearly Varma said, who teaches finance at
risk weights on unsecured personal
the Indian Institute of Management in
for greater good
loans and credit cards and, or, float a
Ahmedabad.
discussion paper on how to monitor An outspoken member in India’s rate-
the space more efficiently," said the setting body has criticized the central
RBI to pay Rs. 87,416 crore
head of credit card vertical at a private bank for being non-transparent about
as dividend to Centre for
sector bank. its policy intent and confusing the pub-
lic with technicalities. FY23
As per RBI norms, the risk weights - or
the capital that the banks need to set “The monetary policy committee The Reserve Bank of India's Central
should not be content with communi- Board of Directors approved the trans-
aside for every loan - on unsecured
cating to an ‘inside’ audience of regu- fer of Rs. 87,416 crore as surplus to the
personal loans and outstanding on
lated entities in a coded language, but Central government for the accounting
credit cards currently stands at 100%
should endeavor to communicate with year 2022-23. This is 188 per cent
and 125%, respectively.
the general public in as transparent a higher than previous financial year's
Compromise settlements language as possible,” Jayanth Rama surplus transfer of Rs. 30,307 crore.
Varma, an external member in the
also need board nod: RBI The board decided to keep the contin-
Reserve Bank of India’s six-member
gency risk buffer (CRB) at 6 per cent
The RBI has put the onus of settling panel, said in an interview via email.
(5.50 per cent in FY22). As per the ex-
cases of wilful loan default on the
The central bank left the key rate un- pert committee to review the extant
board of directors of the lending banks.
changed for a second straight meeting economic capital framework, CRB is
The policies also need to ensure that
on June 8 and maintained its ‘with- required to be maintained within a
individuals or committees responsible
drawal of accommodation’ stance as it range of 6.5 per cent to 5.5 per cent
for approving such settlements hold
tries to ensure the recent moderation of the RBI's balance sheet, comprising
higher authority than those sanction-
in inflation continues. It wants to keep 5.5 to 4.5 per cent for monetary and
ing the credit or investment exposure.
a close vigil on risks to inflation from financial stability risks and 1 per cent
"Regulated entities may undertake uneven rains and geopolitical tensions, for credit and operational risks.
compromise settlements or technical minutes of the MPC meeting showed.
The RBI's Central Board, in its meet-
write-offs in respect of accounts
Varma, who has expressed his reserva- ing, reviewed the global and domestic
categorised as wilful defaulters or
tions against the language of the economic situation and associated
fraud without prejudice to the criminal stance for six straight policies since challenges including the impact of cur-
proceeding under way against such August last year, called it “more vesti- rent global geopolitical developments,
debtors…Proposals for compromise gial than a statement of intent”. The per an RBI statement. The board also
settlements in respect of debtors clas- stance is losing relevance after the discussed the working of the Reserve
sified as fraud or wilful defaulter shall back-to-back hold and doesn’t truly Bank during FY23 and approved the
require board approval in all cases," reflect what MPC is actually doing or annual report and accounts for the
according to the RBI circular. what it is likely to do in future, he said. accounting year 2022-23.
14 | 2023 | JULY | BANKING FINANCE