Is the pain over for the country's financial services sector?
I think the piecemeal approach to solve India's financial sector's problems is not working. Financial services sector is the life blood of the economy. In India, there is an immediate and urgent need to create a development financial institution. That institution, with a strong capability and management team, should give long-term (20-25 years) funding support to the economy. Almost all the countries in the world have one such institution which is owned by the government. There is a need for such an institution in India.
What are your views on the NPA (non-performing asset) situation?
We need to review the way we define our NPAs.
Globally, if you see whether it is in the US or in the Europe, banks are not told by their regulators to make provisions based on default timeline of one day, 60 days, 90 days or 180 days. Lenders need to assess the value of assets/securities and future cash flows before making provisions. We need to bring in that global norm into our country. Provisions should not be based on formula and instead should be based on assessment.
Also, globally banks are not allowed to disclose the names of defaulters. If names get disclosed then even if a borrower has defaulted for a day no bank will offer him loan again. It is like if someone has cold and we are putting that person in ventilator. The relationship between a lender and a borrower is a confidential matter. We have made these recommendations through ASSOCHAM. We are not suggesting that we should invent something new, all we are saying is we should align ourselves with the global best practices.
Could there be further NPA related shocks in future?
In terms of value, bulk of the NPA problem has been resolved. But the MSME sector has received a lot funding in the last few years and there could be NPA related problems there. This is because in any economy the survival of the small and mid-sized companies depends on large corporates to a large extent. Hence, while we may not see sharp rise in NPAs
in terms of value, there could be more number of NPA accounts because of the stress in the MSME sector. The NPA ratio in the MSME sector, I would assume, would be in double digit.
How do you see IBC (Insolvency and Bankruptcy Code) panning out this year?
The judiciary plays a very important role in ensuring that an asset is performing and the legal process is completed fast. The intent of the law is to revive businesses and not to create legal hurdles.
Also, I am not in favour of the Section 29 (A). It is wrong to my mind. You cannot stop an entrepreneur from bidding for his own assets unless he is a fraud. If he is a fraud then you initiate criminal actions 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.