The effect of the ordinance empowering the Reserve Bank of India to deal more effectively with non-performing assets will be limited as operational problems of the stressed sectors remain, Moody’s Investors Service said in a report.
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“The government's recent ordinance provides RBI with greater legal authority to intervene in non-performing loans (NPL) resolution,” according to the report. “RBI can now direct banks to initiate insolvency proceedings with respect to specific borrowers who are in default, and can appoint advisory committees to advise banks on the resolution of stressed assets.”
These measures were aimed at encouraging banks to be more proactive in NPL resolution as well as improve co-ordination among banks. The RBI could now direct banks to undertake a plan of action for specific assets if it felt that banks were not taking a prudent approach, it added.
Credit positive
“These moves are credit positive for Indian banks,” Moody’s said.
The ordinance followed a regulatory steps taken by the Centre to address the NPL issue. “The reason for the limited success of the various regulatory measures so far is that they do not address related structural factors.”
The current market value of the stressed assets were far lower and he banks will have to take a significant hit when they write-down the value of these assets to market value, according to the report.
