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RBI tells banks to draft plan to tackle NPAs

A Reserve Bank of India study group has recommended that banks should evolve a common minimum framework to tackle the problem of non-performing assets and asked them to put in place an "early alert system".

The group has suggested that bank boards should work out a strategic response in respect of NPA guidelines and has left it on individual banks and financial institutions to formulate their internal policies in this regard.

Stressing the need for early recognition of NPAs, the group said: "Identification of weakness in the beginning is imperative" and called for introduction of a new asset category between "standard and sub-standard".

Banks could transfer such NPAs to the above category once the signs of sickness or irregularities are identified, it added.

On the "early alert system", the group said it could be put in place to capture "warning signals" for accounts showing first signs of weakness and could be an integral part of the banks' risk management process.

"In respect of totally unviable units as decided by the bank or consortia, it is better to facilitate winding up or selling of the unit early, so as to recover whatever is possible through legal means before the security position becomes worse", it said.

The group has strongly recommended that in such cases banks or FIs could take recourse to the recently promulgated Securitisation and Reconstruction of Assets Ordinance to facilitate foreclosure of financial assets, without any loss of time.

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