Large promoters can impede loan recovery: Rajan

Large promoters have the strength to ‘impede any action’ taken by banks to recover stressed assets, Reserve Bank Governor Raghuram Rajan said on Friday, while emphasising that banks need to quicken the pace of recovery process and not postpone it.

"In some cases, banks have been late in taking action.

“There are also many impediments as well and large promoters are strong enough to impede any action," Rajan said.

Speaking to reporters after the central bank's board meeting here, he said that banks have a number of ways to deal with the problem of stressed assets.

"The idea is not to postpone the day of reckoning.

“But banks have the wherewithals to accelerate the process to recover the assets," he said.

Rising non-performing assets or bad loans, especially in case of public sector banks, have been a cause of concern for RBI as well as the government.

Central Bureau of Investigation on Thursday examined United Breweries Group Chairman Vijay Mallya in connection with its probe into alleged loan default of Rs 900 crore (Rs 9 billion) taken from IDBI bank.

Mallya, accused of not repaying loans taken from several public sector banks for now defunct Kingfisher Airlines, had been declared a wilful defaulter by State Bank of India.

Regarding change in the guidelines for calculation of base rate, Rajan said RBI had discussed with the banks and their views had been taken into account.

"We have made adjustments and the final structure will not be a difficulty for them", he said.

On requirement of capital by nationalised banks, he said that it would depend on the profits, growth in assets and the extent of dilution of government stake in them, he said.

"The exact requirement will depend on what assumptions one is making", Rajan said. Regarding Friday's board meeting, Rajan said that discussions were held on global and domestic economic concerns as well as financial literacy.

He said that Reserve Bank of India's intention was to supply the market with plenty of liquidity.

"All instruments are available with RBI for short-term, medium-term and long-term liquidity", he said.

Image: RBI Governor Raghuram Rajan. Photograph: Reuters