RBI suggests loan rate hike for 'willful' defaulters

Reserve Bank of India governor Raghuram RajanReserve Bank of India governor Raghuram Rajan today expressed concern over the rising incidence of bad loans suffered by commercial banks, and said the RBI is considering making borrowings more expensive for willful defaulters.

Speaking at the Delhi Economic Conclave, Rajan said the central bank will come out with a discussion paper next week with regard to distressed borrowers and rising non-performing assets (NPAs).
    
"For willful defaulters or a new category that we call uncooperative defaulter, future borrowing will become more expensive. By uncooperative defaulter I mean those who don't work with their lenders to achieve equitable and efficient resolution of stressed assets," he said.

Rajan said there was a need to ensure that the system recognises financial distress and provide for fair recovery of loans the interest of lenders and investors.

"Next week, we propose to put out a discussion paper ... the key element will be to deal with distressed borrowers. It will focus on recognition, resolution and recovery (of assets)," he said.

Rajan said inability to deal with the problem of distressed assets will have a bearing on the country's growth prospects.
 
Under current norms, all banks are required to have a mechanism for early detection of signs of distress, including having a loan recovery policy which sets down the manner of recovery, and monitoring of write-offs.

The ratio of top 30 NPAs as a percentage of gross NPAs, in respect of public sector banks, as on September 2013 is 35.5 per cent, and for all banks it is 38.8 per cent.

The gross non-performing assets (NPA) of top 30 accounts of public sector banks stood at Rs72,174 crore, while for all banks it was Rs91,667 crore at the end of September this year.