State Bank of India chief has hailed the recent Reserve Bank of India (RBI) directive on bad loans stating that it will prompt state and central government to make payments on time and discipline borrowers. The RBI on February 12 directed banks to refer defaulting companies to bankruptcy court if a resolution is not put in place within 180 days of default.
SBI chairman, Rajnish Kumar said, “One thing we have to recognize that there have been lots of delays in terms of payments, it is not only the borrower or the corporate who has to manage their cash flows but I believe that the people who have to pay including the state and central government they will also start paying in time so that the intent and the objective of this circular can lead to a very healthy credit market.”
The comes at a time when the directive led to losses for several banks as they had to immediately downgrade several corporate loan accounts and make high provisions. The RBI directive also scrapped all the debt restructuring schemes and asked banks to classify those loans as non-performing loans.
“The RBI circular means better discipline among borrowers because they will also need to plan their cash flows properly," Kumar added. SBI had to provide Rs 5662 crore in fourth quarter on account of the bad loan directive.