Mumbai, Sept 8 (KNN) RBI Deputy Governor Viral Acharya, while delivering 8th R K Talwar Memorial Lecture, expressed concerns for the small scale industries stating they are reliant on relationship-based bank credit. 

“I worry for the small scale industries that Mr Talwar cared the most about, which are reliant on relationship-based bank credit,” he said.

Acharya was delivering his speech at the 8th R K Talwar Memorial Lecture organised by the Indian Institute of Banking and Finance at Hotel Trident, Mumbai on the topic ‘The Unfinished Agenda: Restoring Public Sector Bank Health in India’.

He pointed that Mr Talwar, considered as the State Bank of India (SBI)’s greatest Chairman, was also considered as the father of Small Scale Industries in India.

He said the Reserve Bank hopes that banks utilize the Insolvency and Bankruptcy Code (IBC) extensively and file for insolvency proceedings on their own without waiting for regulatory directions. Ideally, in line with international best practice, out-of-court restructuring may be the right medicine at ‘pre-default’ stage, as soon as the first signs of incipient stress are evident or when covenants in bank loans are tripped by the borrowers.

Once a default happens, the IBC allows for filing for insolvency proceedings, time-bound restructuring, and failing that, liquidation. This would provide the sanctity that the payment ‘due date’ deserves and improve credit discipline all around, from bank supply as well as borrower demand standpoints, as borrowers might lose control in IBC to competing bidders.

Speaking on ‘Whither are we headed on restoring public sector bank health?’, Acharya said, “we have put in place a process that not just addresses the current NPA issues, but is also likely to serve as a blueprint for future resolutions, becomes the bliss of my solitude! A whole ecosystem is evolving around the IBC and the Reserve Bank’s steps have contributed to this structural reform.”

“But every few days, I wake up with a sense of restlessness that time is running out; we have created a due process for stressed assets to resolve but there is no concrete plan in place for public sector bank balance-sheets; how will they withstand the losses during resolution and yet have enough capital buffers to intermediate well the huge proportion of economy’s savings that they receive as deposits; can we end the Indian story differently from that of Japan and Europe?,” said Acharya.

He said, “I worry for the small scale industries that Mr Talwar cared the most about, which are reliant on relationship-based bank credit. The Indradhanush was a good plan, but to end the Indian story differently, we need soon a much more powerful plan – “Sudarshan Chakra” – aimed at swiftly, within months if not weeks, for restoring public sector bank health, in current ownership structure or otherwise.”