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:



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."


Comments

Popular posts from this blog

NAVAGRAHA STOTRAM

Infinities of being a housewife

THE SUNSET OF THE CENTURY