Businesses should adjust to one-day loan default norm: SBI chief Rajnish Kumar
SBI chairman Rajnish Kumar said that if a borrower delays principal payment on a corporate bond even for a day, the market would penalise the borrower heavily
New Delhi: State Bank of India (SBI) chairman Rajnish Kumar on Thursday said businesses should adjust to the new one-day default norm under the revised non-performing assets (NPA) framework and ensure timely payment of their loan dues.
Reserve Bank of India (RBI) deputy governor N.S. Vishwanathan on Wednesday raised concerns over the large number of borrowers failing on the one-day default norm and asked the lenders to take this as a warning indicator warranting action.
The deputy governor, who is in-charge of the banking regulations department, also said banks should warn their customers that one-day default will lead them to the watch list for resolution. “I think that is perfectly alright. Whatever is the new reality, everybody should adjust to the new ground reality, sooner the better,” the SBI chairman told reporters in New Delhi.
When asked if he was supporting the RBI on the 12 February circular on revised NPA recognition norms, Kumar said what Vishwanathan meant is that there is a discipline in the bond market, so in the loan market also similar discipline has to be there.
“Everybody knows that when the payment is due, so they should manage the cash flow in such a manner that payment is paid on due date,” Kumar said. In Pune on Wednesday, Vishwanathan said the revised framework tries to reduce the arbitrage options that borrowers are currently enjoying while raising funds through bank borrowing compared to raising funds from the market.
“If a borrower delays coupon/principal payment on a corporate bond even for a day, the market would penalise the borrower heavily—the rating would be downgraded, the yields on the bonds would shoot up, cost of further financing would increase, suits would be filed by investors etc.,” said the RBI deputy governor.
Non-performing assets in the banking sector were over Rs8.31 lakh crore at the end of December 2017.