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RBI tightening prudential screws on errant banks, says deputy governor

Reserve Bank of India deputy governor S P Talwar today claimed that the central bank's efforts in strengthening the prudential regulation and supervision system of the financial system have helped in sustaining the health of the Indian banks, enabling them to withstand the contagion effect of the East Asian syndrome.

Talwar spoke at a finance seminar of SAARC countries in Pune. He said the period of reckoning a non-performing asset as doubtful would get shortened to 18 months by March 31, 2001.

Banks are required to create provisions on government-guaranteed NPAs from April 1, 2000. The present prudential standards and the changes envisaged compare favourably with some of the best international practices in developed economies, he said.

The ongoing reforms, Talwar claimed, have enabled the Indian banking sector to emerge stronger. The public sector banks which suffered losses in the initial years of introduction of prudential norms (Rs 32.93 billion in 1992-93 and Rs 43.49 billion in 1993-94), have ended the year 1997-98 with a net profit of Rs 50.27 billion, Talwar informed.

In order to usher in more transparency, the banks have been asked to include in the published accounts from March 31, 2000, maturity pattern of loans and advances, investment securities, deposits and borrowings, foreign currency assets and liabilities, movement in NPAs and lending to sensitive sectors as defined by the RBI, Talwar said.

The RBI has also taken cognisance of the Y2K problem which is pursued more as a business continuity risk than as a technology problem.

Circulars have already been issued in September 1997 to the commercial banks explaining the Y2K problems and possible solutions.

A target date of December 31, 1998 was fixed for ensuring Y2K compliance and banks may be subject to penal measures in case of persisting non-compliance beyond March 1999, he said.

The RBI has urged the banks to set up an efficient and appropriate loan review mechanism to avoid situations wherein borrowers went for projects other than those included in the original schemes sanctioned by the banks. The lack of focussed attention on the end-use of funds by borrowers has contributed to the build-up of NPAs, he observed.

UNI

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