Deputy Governor K C Chakrabarty says monetary policy to ease once inflation comes down The Reserve Bank of India (RBI) has lashed out at banks for attributing their higher bad loans to a fallout of the automated bad loan recognition system, and said the capital market regulator should look into the issue.

“This means the banks were misguiding the investors by showing improper figures in the past,” said RBI Deputy Governor K C Chakrabarty. 

Last year, the government had mandated all public sector banks to migrate to the core banking solution and eradicate manual intervention in the process of detecting non-performing assets (NPAs) in their books. This had resulted in a surge in banks' bad assets.

Chakrabarty, the most senior deputy governor of the central bank, wondered on how an inanimate object like the ‘system’ can generate NPAs, and said the Securities and Exchange Board of India (Sebi) should look into this issue. “Should not the (markets) regulator, which is dealing with listing, should take action against the banks?” he asked.

“I do not want to negate what he (Chakrabarty) said. But it is not that on a very big scale the bankers have all of a sudden come out with this situation,” Central Bank Chairman and Managing Director M V Tanksale told reporters on the sidelines of the same event.

Tanksale explained his bank, which ended the last quarter in the red due to higher NPAs and restructuring due to exposure to power distribution companies, showed a spurt in NPAs because other banks got two to three years to migrate, while his bank got only nine months. Union Bank of India CMD D Sarkar said in the manual system of NPA recognition, some liberty was taken during external or internal audits, while the new system-based approach takes a methodological view.

During his speech, the deputy governor also said the central bank did not expect banks to provide service of electronic transactions free of charge, instead banks should make it viable with the help of technology. He said free services were not viable, could be misused and hence could not be scaled up.

Chakrabarty said the apex bank would ease its monetary policy once inflation came down. “Headroom to cut rates is always available, but it will come down only when inflation comes down.” It was also important for inflation to come down so that savers can enjoy positive returns on their investments. (Business Standard)