Bad loan menace: RBI board, rating agencies to lead from the front

The central bank of the country released a new and expanded framework that it is planning to follow to flush out bad loans from the banks' books. The apex bank will release the minutes of the strategy later.

Under the new skeleton, Reserve Bank of India plans to restructure Oversight Committee (OC) under the supervision of the respective banks.  The extended body will have more members so that it can deal with a large number of piling cases related to bad loans. 

The OC was originally framed by the Indian Banks’ Association (IBA) to approve restructuring done under the Scheme For Sustainable Structuring of Stressed Assets (S4A).

The regulator revealed that the present two members will continue to serve while more members will join the committee soon. The regulator mulling on the revamping of the guidelines that were framed earlier.
 
The rating agencies are expected to play a crucial role in solving the stressed asset issue, said the central bank. The rating assignment may be decided by the RBI to avoid any kind of ill practice or conflict of interest. The RBI plans create a pool from the contribution of the banks that would be used to pay the rating agencies for their services. 

“Reserve Bank has already sought information on the current status of the large stressed assets from the banks,” it said in its statement. RBI said that it will put in place an objective and consistent decision-making process for cases where the solution may be achieved via the Insolvency and Bankruptcy Code (IBC). The RBI will lay an objective and strong decision-making process. Independent members of a committee might brainstorm to untangle such critical cases.