Proposed ARC will not ‘jeopardise’ existing players: RBI Governor

Speaking about stressed assets, the governor said there is growing awareness and realisation among banks in dealing with NPAs

Mumbai: The proposed asset reconstruction company (ARC) for management of non-performing assets (NPAs) announced in Budget 2021 will not ‘jeopardise’ the activities of existing players in the space, Reserve Bank Governor Shaktikanta Das said on Thursday.

While presenting the Union Budget 2021, Finance Minister Nirmala Sitharaman proposed to set up an asset reconstruction company and asset management company to consolidate and take over existing stressed debts and manage them.

“(In) no way will it (proposed ARC) jeopardise the activities of the existing ARCs. I think there is scope to have one more strong ARC…,” the governor said at an event organised by the Bombay Chamber of Commerce. There are close to 28 asset reconstruction companies operating in the country at present. Das said the proposal for setting up an ARC was given by public sector lenders to the government, which accepted it and announced it in the Budget. The proposed entity will take over stressed assets from the books of public sector banks, and try to resolve them like any other ARCs are doing, he noted. Das also said strengthening of regulatory architecture for existing ARCs is very much on the central bank’s agenda.

“Refining and further upgrading the regulatory architecture in respect of ARCs to ensure that they have a skin in the game and they are very much in business, is one aspect which is receiving a lot of attention from us,” he said, adding last year he had interacted with a group of ARCs but Covid-19 slowed progress on that front.

Speaking about stressed assets, the governor said there is growing awareness and realisation among banks in dealing with NPAs. Even during the period when the Supreme Court ordered an asset classification standstill, banks proactively provisioned for stressed assets, he said.

The governor said RBI has also sharpened and deepened its supervisory methods and is now going to deep dive into areas of banking that were unexplored earlier. With the help of the Central Repository of Information on Large Credits (CRILC) data coming in from banks on a regular basis, RBI has an idea on the quantum of stressed assets in various default buckets, he said. “We have a precise idea of the build up of stressed assets in banks and as soon as we see a sign of stress, we immediately enter into a discussion with banks and proactively deal with the problems,” he emphasised.

The governor said apart from RBI’s supervisory and regulatory initiatives, the key to all issues is improving the governance in both public and private sector banks. One area which requires focus of the bank management is on improving their credit appraisal skills and taking measures to see whether evergreening of loans, which was happening at some point, is suitable or not, Das said. He also said the country’s financial sector currently is in a much better place than it was earlier.