Strongly disapproving requests for “regulatory forbearance” in cases of asset quality stress made by lenders and corporates, Reserve Bank Governor Raghuram Rajan told bankers on Friday not to find “artificial fixes” for the problem.

Dr Rajan said the RBI had received requests from lenders and corporates requesting for postponing recognition of stressed assets as “bad loans”, even though it may not have been serviced for three years.

“Let’s not try to find artificial fixes. Let us go about fixing it the right way. Postponing recognition will not help. If it is not paid today, it won’t get paid tomorrow,” Dr Rajan said, adding that the best way out is to make sure that the asset itself becomes viable.

It may be noted that NPAs of banks touched an all-time high of over 5 per cent as of the December quarter, while FY’14 saw banks recasting as many as Rs 1 lakh crore worth of loans, taking the overall corporate debt restructuring loan book to close to Rs 4 lakh crore. NPAs and CDR loans put together is over 10 per cent of the system as on last December.

“Borrowing at 6 per cent and lending at 8 per cent to 10 per cent, net interest margins (NIMs) of three per cent to four per cent is easy, but it is when bad loans start hitting, you have to clean up the balance sheets. In fact, you have to rise to the task. You have to clean up balance sheets, you have to clean up expenses and bring down costs. That’s the way to do it,” he said, conceding that it is very hard to do.

Dr Rajan was talking to reporters on the sidelines of the annual convocation of the RBI-run National Institute of Bank Management in Pune.

He had declared a war on wilful defaulters in his inaugural speech itself, saying that there cannot be successful promoters despite failed companies and that such promoters have no “divine right” to be managing their failed companies.

He said that rather than asking for special concessions, bankers should focus on getting an asset back on stream through interventions on the payments and management side, or finding an alternative use for the asset.

Dr Rajan said cleaning up balance sheets would placate investors and help lenders raise the required capital from markets and devote resources to needy sectors.

“We have enormous infrastructure needs coming up in the next few years. It is mindboggling. Our capacity to finance those projects has to be upgraded. We have a long way to go,” he said, adding that it’s infrastructure loans itself which have gone bad recently.

He pointed out that there are financial entities which are capable of cleaning up their finances, but still deal with bad loans that have emerged from the past financing of infrastructure. So it is extremely important for them to clean up their balance sheets, he said.

The government has set a $ 1 lakh crore investment target for the infrastructure sector in the ongoing five-year plan period.

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