Rajan wants more powers for banks to fight stressed loans

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Reserve Bank Governor Raghuram Rajan has made out a case for more powers to banks to deal with stressed loans in absence of an efficient bankruptcy law.

“We need to give banks power to deal with stressed debt… because India does not have an efficient bankruptcy or corporate resolution system,” the Financial Times Group’s monthly publication ‘The Banker’ quoted him as saying.
In recognition of RBI’s contribution, The Banker has felicitated Rajan with the title of Global and Asia-Pacific Central Bank Governor of the Year, a release said.

The governor saw consolidation as a solution in the medium term, saying premature mergers might lead to “a potentially bigger problem”.

Gross non-performing assets of public sector banks had gone up to Rs 3.14 lakh crore at the end of September 2015.

On new bank licences, Rajan expressed hope that the old banks “will feel compelled” to start offering innovative products to match new entrants.

RBI has granted approval to 23 entities to operate as banks, including payments banks, to make the banking sector more competitive. On foreign investment, the ‘The Banker’ quoted Rajan as saying: “The worst thing for a foreign investor is to have a whole lot of money coming into a market, the country not being able to handle it, and capital outflows wreaking damage.” RBI of late has taken several steps to increase foreign flows into the country.

Recounting RBI’s achievements in the past year, The Banker said, “India is the one global economy that arguably weathered the capital outflow and currency storms in emerging markets fuelled by uncertainty over the US Federal Reserve interest rate hike in 2015.”

It added: “At 7.4 percent, India’s 2015 third-quarter GDP growth was the strongest among large economies; the rupee was one of the few stable emerging market currencies in 2015; and a clear financial market liberalisation path is attracting foreign investors and making India’s financial markets more sophisticated.”

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