Sources said the ministry felt the rules were good “at least in theory” but “in practice, the new framework could have some unintended consequences, unless the wider financial and
economic management system is not upgraded to meet the needs of the new arrangements”.
“The new norms impose strict timelines on the cash flow of the whole economy, not only the banks,” a senior finance ministry official said.
PSBs have already said they want the resolution process for a loan to be invoked after a minimum of 30 days delay in payment.
The ministry seems to have also requested RBI to consider deferring the new norms by a year but the central bank is not willing.
“If borrowers fail to pay on the due date because of a cash flow problem, banks should see that as an early warning indicator, warranting immediate action. If borrowers with the ability to pay on the due date do delay it routinely or because they see other arbitrage options, that must change, too,” RBI deputy governor N S Vishwanathan had said at an event in April.
The department of financial services had also written a letter to RBI, on concerns raised by a parliamentary panel on the regulator’s new norms.
The meeting with the PM comes at a time when rising oil import prices threaten to increase inflation, widen the current account deficit and the fiscal deficit. Prices of the Indian basket of crude oil averaged $75.31 in May against $69.3 a barrel the previous month, according to government data.
Among macro parameters, economic growth rose to a seven-quarter high of 7.7 per cent in January-March. However, the purchasing managers’ index for services, issued this Tuesday, fell below 50 points, denoting a contraction, for the second time in four months.
The meet also discussed the state of PSBS, where there was a spurt in losses for the final quarter of 2017-18, due to higher
provisioning of losses towards bad loans.
More, 11 of the 21 PSBS are under RBI’s ‘prompt corrective action (PCA)’ framework, involving lending and expansion restrictions. And, five more are on the verge of slipping into PCA.
Public and private banks together added a little over ~1.3 trillion in gross non-performing assets during the quarter ended March.