Rai, RBI to hold parleys over bad loan probes

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With lenders facing the heat from investigative agencies due to an increase in bad loans the Banks Board Bureau (BBB) has decided to discuss the issue with the Reserve Bank of India in the presence of bankers.

The move comes at a time when the Centre has asked banks to speed up their recovery efforts by using all the available tools including one time settlement.

However, more often than not, the bank has to be prepared to forego a sizeable portion of the dues as part of the one time settlement. And banks are wary that the investigative agencies will hound them if their decisions go wrong.

“We have received a communication from the BBB that a meeting is scheduled next week,” a chief executive of a state-run lender, said on condition of anonymity. “Some of the issues that we are facing regarding interference of investigative agencies in decision making processes will be discussed.”

Public sector banks, which come under the purview of the investigative agencies, have been facing the heat amid sharp rise in non-performing assets.

RBI caution

RBI governor Raghuram Rajan has also cautioned against a growing trend of probing loan defaults, saying it could ‘chill’ lending.

“Both the finance minister and I have said that it is important that we investigate to see the mistakes as well as criminal activity that may have taken place, but do it based on judgments that would have had to be made at that time and do not use today’s thinking and today’s information to guess at that,” Mr Rajan had said in April.

“Otherwise you will chill bank lending and you will make sure that we really do not get any risk taking in this economy by entrepreneurs or by the bankers, we need both in order to get economic growth,” he said.

Bankers said the CBI Director, the Chief Vigilance Commissioner and the RBI governor would be present at the meeting. BBB, which was formed earlier this year, with former comptroller and auditor general of India Vinod Rai as head, is looking to help reduce bad loans at public sector banks.