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Banks can still disguise bad debts

Reserve Bank of India Governor Raghuram Rajan speaks to The Econ

New Delhi, Dec 9 : The banks in India are grappling with more than USD 110 billion of corporate stressed debt, a burden that is holding back fresh loans and hampering a speedier economic recovery. Hoping to press banks to acknowledge the size of bad debts and tackle them, the Reserve Bank of India last week set a March 2017 goal.

The RBI has offered lenders strategic debt restructuring (SDR), a provision that will aim at helping the banks swap unpaid debt for majority control.

RBI Governor Raghuram Rajan has campaigned to get the banks to classify debt correctly and to oust errant company owners. Commercial banks say his team has been active, checking provisions and exactly how loans are recorded and reported.

“As banks through SDR are able to delay provisions on the stressed SDR accounts by 18 months, it would result in bunched up provisioning,” Credit Suisse analysts said in a note, adding this could add to banks’ already elevated credit costs.

Since SDR was introduced in June, it has been invoked by banks in nine cases, with at least one other due. (ANI)

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