1 week ago
Ashok Lahiri Urges FRDI Revival, Flexible NPA Rules
Ashok Lahiri wants policymakers to discuss two changes to banking rules.
One idea is to bring back a revised FRDI Bill for dealing with failing banks and other financial companies.
The earlier bill was withdrawn because people worried that depositors could lose access to their money under a bail-in provision.
Lahiri says financial institutions that can recover should be identified quickly.
He also says institutions that cannot recover should be dealt with without delay.
His second idea concerns small businesses that have missed loan payments.
Large companies may find other money to repay their overdue loans, but small businesses often cannot.
Lahiri suggested that some viable small businesses could repay part of what they owe and receive more time to repay the rest.
NITI Aayog vice-chairman Ashok Lahiri urged renewed discussion on banking-sector reforms.
He called for reviving the FRDI Bill with amendments to address financial-entity failures.
The government withdrew the 2017 bill in 2018 amid concerns about depositor protection and its bail-in provision.
Lahiri proposed differentiated NPA rules allowing viable small borrowers to repay part of overdue amounts and extend repayment timelines.
His suggestions come as the government prepares to establish a high-powered committee on banking reforms.
- Who
- NITI Aayog vice-chairman Ashok Lahiri made the proposals.
- What
- He called for renewed consideration of the FRDI Bill with amendments and differentiated NPA rules for small business borrowers.
- Where
- When
- The proposals were made as the government prepares to constitute a high-powered committee on banking-sector reforms.
- Why
- Lahiri said failing financial entities need to be resolved efficiently and that smaller viable businesses can be disproportionately harmed by NPA classification.
Reform proponents
Depositor-protection concerns
Reviving the FRDI framework
Reform proponents
Ashok Lahiri supports reopening discussion on the FRDI Bill with suitable amendments, arguing that institutions should be separated quickly into those that can be revived and those that require resolution.
Depositor-protection concerns
Concerns about the earlier bill focused on its bail-in provision, which critics feared could put depositors' money at risk by using deposits and certain securities to support a failing institution.
Treatment of small-business NPAs
Reform proponents
Lahiri favors allowing viable small borrowers to repay a specified share of overdue debt, such as 50 or 75 percent, while receiving more time to repay the remainder.
Depositor-protection concerns
The article does not identify a specific opposing proposal, but notes that banks would need to retain mechanisms to recover their dues.
Key facts
- FRDI Bill
- The Financial Resolution and Deposit Insurance Bill was introduced in 2017 to address insolvency and failure among financial-sector entities.
- Bill withdrawn
- The government withdrew the proposed legislation in August 2018.
- Main concern
- Opposition centered on depositor protection, particularly the bill's bail-in provision.
- Lahiri's resolution proposal
- Financial institutions that can be revived should be identified quickly, while those beyond repair should be resolved promptly.
- Differentiated NPA framework
- Lahiri proposed considering separate treatment for small and medium-sized business borrowers.
- Possible repayment threshold
- Small borrowers could potentially repay 50 or 75 percent of overdue amounts and receive an extended repayment timeline.
- Upcoming committee
- The government is set to constitute a high-powered committee to deliberate on banking-sector reforms.
Quotes
Ashok Lahiri
Niti Aayog vice-chairman advocating banking-sector reforms
“A company or an entity may be dead, but if it is not cremated or buried in a decent way, the liability side of its balance sheet does not stop growing.”
telegraphindia.com
“Keeping a dead financial sector entity alive can only increase its accumulated loss”
telegraphindia.com
Sources
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