Bad loans Current Affairs

Public Credit Registry: New Information Repository to be set up by RBI

The Reserve Bank of India (RBI) has announced that it will set up a Public Credit Registry (PCR) as a repository of information regarding loan information of individuals and corporate borrowers. This decision has been taken as per recommendations of Y.M. Deosthalee committee set up by the central bank.

Y.M. Deosthalee Committee Recommendations

The Y.M. Deosthalee committee was set up by RBI and had submitted its report in April, 2018. The major recommendations of this committee report are as follows:

  • RBI should set up a Public Credit Registry in due course and this should be backed by a legal framework. The central bank may also consider moving such registry to a separate non-profit entity.
  • PCR will work as a repository of all loan contracts, duly verified by reporting institutions for all / any lending in India, regardless of the amount of the loan.
  • PCR should also capture data such as external commercial borrowings, market borrowings, and all contingent liabilities; and should provide an holistic picture about the borrower’s indebtedness.
  • The registry should capture both positive and negative information about all loans. The borrowers should also be able to access their own history.
  • The PCR data should be available to all stakeholders such as banks on a need-to-know basis. There should be adequate safeguards on privacy protection.
  • Onus of data quality should be on reporting agencies and institutions and action should be taken against the institutions in case of any violations in rules.
  • The database should also be linked to defaulter databases such as those maintained by Export Credit Guarantee Corp. of India, GST network etc.

RBI Action

On 6 June,2018, RBI has disclosed the plans to establish the PCR in modular and phased manner. This registry will distinguish between bad borrowers and good borrowers and will offer interest rates accordingly. It will help in improving access to credit, strengthen the credit culture and strengthen the banking system because at present, the corporate borrowers lend from multiple banks without disclosing their existing debt.

Month: Categories: Banking Current Affairs 2018

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RBI constitutes YH Malegam committee to monitor bad loans, rising cases of frauds, audits

Reserve Bank of India (RBI) has constituted an expert committee to look into the entire gamut of issues relating to classification of bad loans, effectiveness of audits and rising incidents of frauds. The committee will be headed by Y H Malegam, a former member of Central Board of Directors of RBI.

Terms of References

The committ will look into reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis RBI’s supervisory assessment. It will suggest steps needed to prevent it, factors leading to increasing incidence of frauds in banks and measures (including IT interventions) needed to curb and prevent it. It will also look into role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds.

Background

The committee was set up in wake up of Rs 11,400 crore SWIFT (Society for Worldwide Interbank Financial Telecommunication)-related fraud in Punjab National Bank (PNB) and RBI’s drive  of strengthening supervisory framework in the country to avoid frauds. Government also had asked RBI whether it has at any stage detected fraud, involving letter of undertaking (LoUs) issued to foreign branches of Indian banks on behalf of companies promoted by Nirav Modi and Mehul Choksi.

Month: Categories: Banking Current Affairs 2018

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