RBI for independent valuation of debt recast plans to ensure fairness

KOLKATA: Reserve Bank of India plans to mandate independent valuations for large restructuring proposals to ensure viability and fairness, governor Raghuram Rajan said Tuesday.

The central bank is working on to develop systems for early detection of financial distress and plans new entities to restructure and buy distressed assets. "We need to have more transparency in restructuring," Rajan said in Kolkata at an CII event.

"For cleaning up the system, we need to recognise the problem early, resolve it early and recover the money," he said. RBI will elaborate all these plans next week in a discussion paper on recognising financial distress.

Banks are facing and have dealt with a large number of proposals for debt restructuring, which adds up to the stress that they are already in due to spiraling of bad loans. Rajan said banks will choke up with bad loans if system for early detection of financial distress can not be developed.

"We need to give promoters incentives for defaulters to cooperate. We will make future borrowing more expensive for wilful and uncooperative defaulters," Rajan said. The governor has underscored a need for effective judiciary and bankruptcy systems to deal with the NPA menace.