The RBI has reportedly asked banks to make steep increases in the provisioning for bad loans that are referred to bankruptcy courts. This might appear tough: the banks will have to find something like an additional Rs50,000 crore this year and a like amount next year, at a time when they, for the most part, make losses, meaning they will have to find fresh capital.
It might also appear to hinder the bad loan restructuring exercise. However, setting aside resources to cover possible losses would serve to reinforce trust in Indian bankings integrity and the security of depositors savings. Clearly, the banking regulator makes this the overriding concern. We concur.
A sensible way out for the banks is to sell their bad loans to asset recon…
Read the full article at: http://blogs.economictimes.indiatimes.com/et-editorials/high-provisioning-no-pain-no-gain/