: Opinion: This RRR flopped badly #IndiaNEWS #News By B Yerram Raju I saw the film RRR and wondered how I should title this article on Asset Quality Review (AQR) undertaken by Raghuram Rajan Reforms

Opinion: This RRR flopped badly #IndiaNEWS #News
By B Yerram Raju
I saw the film RRR and wondered how I should title this article on Asset Quality Review (AQR) undertaken by Raghuram Rajan Reforms (RRR) in the banking sector during his regime as Governor.
The Economic Survey 2020-21 while criticising the AQR’s inability to prevent the evergreening of loans in the name of restructuring, called for dealing with it. RRR depicted the story of Komaram Bheem and India’s independence differently while one ‘R’ less, destroyed the confidence of the banks in one stroke and even a big bank like the State Bank of India had to bite the bullet in 2017.
In the context of high inflation accompanied by high growth, the credit book of banks is looking bright. The saving grace here is the fact that Indian corporates, barring a couple of large exceptions, have significantly deleveraged and are no longer so vulnerable to the debt threat. It is a moot point whether the present classification of assets into Special Mention Accounts (SMA-0,1,2) is adequate or if more regulatory and supervisory reviews are needed.
RBI’s Stance
RBI Governor Shaktikanta Das has categorically said that the central bank is neither contemplating nor feeling the necessity of taking up AQR in future. “We have really deepened our supervision. In the context of non-banking financial companies, I had said that our supervision is doing a deep dive to get a clear picture about the true state of affairs of non-performing assets. Similarly, with regard to the banks, it is part of the supervisory process. We are doing a deep dive. We are making our own assessment of the true state of NPAs in each of the banks. We are doing what an AQR needs to do. That’s happening as part of the supervision,??? he said recently.
The thematic construct of AQR prevailing in Europe that RRR followed, focused on bank processes, policies, and accounting decisions. It rested on the classification of financial instruments, amortisation of financial assets in terms of cost vs fair value, equity positions, hedge accounting and derecognition. Further, it verified and validated the non-performing assets and the related provisioning, forbearance and loan restructuring methods. This was expected to lead to a reduction in information asymmetry. Banks emerging with cleaner balance sheets would be able to access capital easily from the markets and PSBs would not have to go for recapitalisation. Banks were given time till 31st March 2017.
Government View
“If the AQR had correctly identified all the hidden bad quality assets on bankp?&H?????[H[??X?H[???[?H?X????H???[?[????[]?H???YY?HH?]YXY[?H??L?M?

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