Mumbai: Reserve Bank of India Deputy Governor NS Vishwanathan on Tuesday advised lenders to ensure timely resolution of stressed assets under the new framework to extract the maximum value and asked them for deal only with "genuine" cases.
Addressing the annual industry event Fibac, he also said that the central bank will be coming out with the final guidelines for private and foreign bankers' compensation soon.
Vishwanathan said the RBI's revised framework on resolution of stressed assets introduced on June 7 is "less intrusive" as it gives banks the leeway to draft their own resolution plans for a particular case.
"Timely resolution is very important. I'd request you to ensure that the resolutions are done in time, not just for the regulatory requirement but also because it will result in better valuation going forward.
"We've given a lot of freedom to banks to determine various contours. We are making less intrusive regulations and hope that banks will use this to deal with genuine stress in their balance sheets to address the problem," he said.
The RBI issued the new NPA recognition and resolution guidelines on June 7 after the Supreme Court had, in April, declared the earlier one issued on February 12, 2018 as ultra vires.
In the new regulations, lenders have the final say on resolutions.
The new framework stresses coordination between banks while dealing with a stressed assets by mandating them to sign inter-creditor agreements and decide on a resolution strategy in 30 days, which will have to be implemented in 180 days.
Meanwhile, Vishwanathan also said the RBI will soon be coming up with the final guidelines for top management compensation.
"Last year we had issued draft guidelines on revised compensation policy, aligning it with global guidelines. We have got excellent comments from the market, bankers and HR practitioners and we will soon come out with final guidelines on the revised compensation policy," he said.
In the draft guidelines, the RBI had proposed measures including making 50 percent of the compensation of senior officials of private and foreign banks "should be variable".
Some banking sources said the central bank is also planning a "clawback" clause, such that a key official has to pay back past bonuses and incomes if she has been found to have erred in any aspect. Another source said this is drafted in keeping the ICICI Bank CEO case mind.
Vishwanathan said India has adopted a flexible approach when it comes to adopting the post global financial crisis regulations, which are conservative on a few things. The strategy is to "calibrate" the regulations in sync with the local requirements, he said, listing out the deviations which have been opted for. Net stable funding ratio has been deferred to April 2020 and adopting group exposures framework in April 2020 even after adopting the large exposure framework in April this year.
He said the biggest lesson from the crisis was the importance of liquidity.