Celebrations over the ordinance to clean up the banks’ bad loans mess is quickly giving way to fear. Some bankers are disappointed they didn’t get yet another scheme to kick the can down the road, promoters are worried about losing their fading jewels, potential insolvency professionals are cheering and the conservatives worry the regulator is tying itself in knots. A sign of things to come is in the Reserve Bank of India’s Friday tweaking of the Joint Lenders’ Forum’s (JLF) functioning when it imposed a penalty on rogue banks that won’t implement the consensus decision and stripped bank boards of their power to overrule the forum’s decision. If the regulator has its way in driving banks to insolvency courts to sort out defaults, Indian banking won’t be the same again. The clear message from the government— it has run out of patience and the empowerment of patience and the empowerment of the regulator should get banks on their toes. After years of dithering, the government last week pulled the plug on banks reluctance to recover bad loans due to fear of witch-hunt by investigative agencies and the spectre of losing thousands of crores in write-off of asset value. As there were more than 10 banks in big loans consortium, companies were gaming the system by pitting one bank against the other. Banking inertia led to stressed assets rising to 12.3 per cent of total loans, choking credit at a reasonable cost even to viable new projects. Unscrupulous borrowers gamed the judiciary to their advantage as they continued to milk the assets and siphoned off funds as banks watched haplessly.  That is set to change taking Indian banking to international best practices if the RBI pushes a few cases to the Insolvency courts.

(Economic Times)