Is the pain over for the country's financial services sector?
I think the piecemeal approach to solve its problems is not working. Financial services are the economy's life blood. There is an urgent need to create a development financial institution. That institution, with strong capability and management, should give long-term (20-25 years) funding support to the economy. Almost all countries have one such institution, owned by the government. There is need for such a body in India.
Your views on the NPA (non-performing asset) situation?
We need to review the way we define our NPAs. In America or Europe, banks are not told by their regulators to make provisions (for stressed loans) based on default timelines of a day, 60 days, 90 days or 180 days. Lenders need to assess the value of assets/securities and future cash flow before doing so. We need to bring that global norm into our country. Provisions should not be based on a formula but on assessment.
Also, globally, banks are not allowed to disclose the names of defaulters. If these do get disclosed, then if a borrower has defaulted for only a day, no bank will again offer him a loan. It is like if someone has a cold and we are putting that person in a ventilator. The relationship between a lender and a borrower is a confidential matter.
We have made these recommendations through (business chamber) Assocham. We are not suggesting we invent something new -- all we say is that we should align ourselves with global best practices.
Could there be further NPA-related shocks?
In terms of value, the bulk of this problem has been resolved. But, MSMEs (micro, small and medium enteprises) had a lot of funding in the past few years and there could be NPA-related problems there. This is because the survival of small and mid-sizes companies
in any economy depends on large corporates to a large extent.
Hence, while we might not see a sharp rise in NPAs in terms of value, there could be more numbers of NPA accounts because of stress in the MSME sector. The ratio here, I would assume, would be in double digits (as aporportion of advances).
How do you see IBC (Insolvency and Bankruptcy Code) this year?
The judiciary plays a very important role in ensuring an asset is performing and the legal process is completed fast. The intent of this law is to revive businesses, not to create legal hurdles.
Also, I am not in favour of Section 29A (of the Code, which bars promoters and related entities which are held to have defaulted on loan repayment from biddng for such an asset). It is wrong - you cannot stop an entrepreneur from bidding for his own assets, unless he is a fraudster. If he is one, then initiate criminal action against him.
But, the CoC (Committee of Creditors) should have the right to decide whether to allow an entrepreneur to bid for his own assets.