Piecemeal regulatory forbearance will not go far and tougher
questions will be asked of both Mint Road and banks, reports Raghu Mohan.
“We must always
remember that tough times never last; only tough people and tough institutions
do,” said Reserve
Bank of India (RBI) Governor Shaktikanta Das, when he announced a raft of
measures to tackle the fallout of coronavirus
(Covid-19) on the economy. It was a signal the days ahead will stretch both
banks and Mint Road; so be prepared. Are we?
The asset quality
of banks and the demands on their capital position due to its further
deterioration must rank among the top concerns. The central bank has moved on
the double to put in place a three-month moratorium on the servicing of term
loans. But there has been no relook at income recognition and asset
classification norms, the status of additional provisioning under the central
bank’s June 7 circular, and the road ahead under the Insolvency and Bankruptcy
Code (IBC) in these stressful times.
Says Divyanshu
Pandey, Partner at J Sagar Associates, “There is good reason to give a
three-month break for the timelines under the June 7 circular. An idea has been
floated that the IBC process itself may be suspended for six months. A like
thought process may be good for the June 7 circular as well.”
The merger of four
sets of state-run banks, effective April 1, has led to a reset of a quarter of
the banking system’s assets, and there is nothing to suggest that these
entities will not require fresh capital down the line – and we have a handle on
only their pre-Covid asset quality as on date. This holds true for private
banks as well and may call for a rethink of their current capital structures.
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