RBI Deputy Governor Dr Viral Acharya on management of banks' stressed assets
RBI
is lucky to get Dr Viral Acharya, who is comfortable with the identity
"Poor man's Raghuram Rajan" as Deputy Governor at this point of time!
Access his February 21, 2017 speech in Mumbai on management of
stressed assets of Indian banks using the above link (@rbi.org.in)
Congratulations and best wishes to Viral Acharya
M G Warrier
My response:
M G Warrier
My response:
Fresh approach to banks’ stressed assets*
This refers to RBI Deputy Governor’s
speech on management of stressed assets of Indian banks (Business Line, February
22) at the IBA's Technology Award event at Mumbai on February 21, 2017. It is comforting to find
that the transparent approach of RBI in policy formulation evolved during the
current decade is being further strengthened by Dr Acharya. The following
observations carry a significant message for all stakeholders:
“Only a bank that fears losing its deposit base or incurring the wrath of its shareholders is
likely to recognize losses in a timely manner. In many of our banks, such
market discipline is simply not present
at the moment. In others, even if some such discipline is at work, banker horizon is excessively short until end
of the CEO’s term.
Banks lobby for regulatory
forbearance; perhaps some loan prospects have turned sour due to bad luck, but beyond a point, concessions in
recognizing losses just ends up being a strategy of kicking the can down the road and leaving
them as legacy assets for the next management team to deal with. The
sectoral concentration of losses
substantially amplifies this problem.”
The message is, RBI is not
comfortable with the ‘hit and run’ or ‘first aid’ approach to handling of
problems faced by the financial system and a comprehensive overhaul touching
the structure, resources and management is what would help it to come out of
the current impasse.
M G Warrier
*A slightly edited version published on February 23, 2017 as "Viral's message" under letters.
Excerpts:
"Let me first discuss the bank
incentives. Only a bank that fears losing
its deposit base or incurring the wrath
of its shareholders is likely to recognize losses in a timely manner. In many of
our banks, such market discipline is
simply not present at the moment. In others, even if some such discipline is at
work, banker horizon is excessively
short until end of the CEO’s term.
Banks lobby for regulatory
forbearance; perhaps some loan prospects have turned sour due to bad luck, but beyond a point, concessions in
recognizing losses just ends up being a strategy of kicking the can down the road and leaving them
as legacy assets for the next management team to deal with. The sectoral concentration of losses substantially
amplifies this problem."
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