PTI Mumbai
Last Updated: November 16, 2013 | 00:00 IST
RBI Governor Raghuram Rajan. PHOTO: Reuters
Reserve Bank of India (RBI) Governor Raghuram Rajan has warned banks against dressing up bad loans and creating bigger problems for future, by drawing a symoblic comparison that one "can put lipstick on a pig but it doesn't become a princess".
"Restructuring is a legitimate attempt to deal with changes that have happened, but ever-greening is trying to ignore the problem and taper over for later period and thus create large problems in future. Clearly, an important distinction we need to draw," the RBI chief told bankers at the annual banking summit in Mumbai on Friday.
Ever-greening is when you are trying to hide the problem and restructuring is when you are trying to deal with a problem where the original zone doesn't quite correspond to the altered circumstances, Rajan said.
"You can put lipstick on a pig but it doesn't become a princess. So dressing up a loan and showing it as restructured and not provisioning for it when it stops paying, is an issue. Anything which postpones a problem than recognising it is to be avoided," the RBI Governor said.
Rising NPAs or bad loans have been a concern to both the central bank and the government. As of June, the gross NPA of nationalised banks was 3.89 per cent and State Bank Group at 5.50 per cent of total advances.
Finance Minister P Chidambaram, last month, had said the government will monitor 30 NPA accounts of each PSU bank to recover dues. He had also said that the bulk of the NPA was from those who borrowed Rs 1 crore and more.
Stating that banks should focus more on getting assets back on track and stop meddling with accounts, Rajan said: "One has to be very clear that we shouldn't meddle too much with accounting but focus on getting the troubled asset back on track."
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