The Hindu Business Line : Dues from States: Banks plan to approach RBI

For settlement
IBA is seeking RBI guidelines for one-time settlement of these bonds
Another issue that was discussed was the classification of NPAs

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Mumbai, Feb. 15 Banks plan to approach the Reserve Bank of India for settling their outstanding dues from State Government guaranteed bonds.

The cumulative outstanding amount for banks that have subscribed to State Government guaranteed bonds amount to Rs 1,000 crore as on August 31, 2007, due to non-payment of the interest on these bonds.

The Indian Banks’ Association is seeking RBI guidelines for one-time settlement of these bonds, where the guarantees have been invoked, but not paid, said Mr H N Sinor, Chief Executive, IBA.

The matter was discussed at the IBA Managing Committee Meeting on Friday.

“We will take this matter to the Reserve Bank of India and seek its guidance,” said Mr Sinor. The RBI had convened a meeting with Chief Secretaries of States two years ago to discuss the issue. “Most of the States except few have defaulted,” Mr Sinor said.

NPA classification

Another issue that was discussed was the classification of NPAs in infrastructure projects. Under the present RBI guidelines, infrastructure projects that have not been able to commence commercial production within 12 months from the period of funding are currently classified as non-performing assets (NPAs), even if the interest component is regularly paid to the bank. Banks want a change in the classification.

“This kind of classification can come in the way of infrastructure growth,” said Mr Sinor. IBA wants the decision to be left to the individual bank’s board of directors. IBA will also give cautionary advice to banks to consider the underlying risks and price it properly.

Reiterating the Finance Minister, Mr P Chidambaram’s concern on the deceleration in the growth of consumption credit and mortgage portfolio of banks, Mr Sinor said the slowdown has been faster than what was expected. “The slowdown should not hurt the growth and banks should not stop lending to these sectors,” he said.

There was a need for softening of interest rates and banks are reviewing it, he said.

Mr Sinor said that banks should open household accounts in rural areas which have been left uncovered.

More Stories on : Banking | Govt Bonds | States

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