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RBI for restructuring of loans, says rates to fall

February 09, 2009 18:04 IST

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The Reserve Bank said on Monday that it prefers banks to restructure loans, particularly to small industries.

Rather than seeking relaxation in non-performing assets norms, the banks might be given more time to restructure such loans.

The central bank is of the view that banks should be given more time to restructure defaulted loans, which could be implemented by lengthening the repayment cycle, RBI executive director Anand Sinha said.

"There have been demands that NPA norms should be relaxed...rather than relaxing the NPA norms, banks should restructure their loans by elongating the repayment cycle," Sinha said at an Assocham-organised seminar in Mumbai.

RBI deputy governor Usha Thorat had recently said that the banks should be given more time to restructure their loans to micro, small and medium enterprises, that would facilitate a win-win situation to both banks and customers.

Further, Sinha said that interest rates would ease over a period of time, given that the system is rich with sufficient liquidity infused by the apex bank over a period of time, through several rate cuts and CRR reductions.

RBI has taken both conventional and unconventional measures to provide enough liquidity in the system...there are some structural reasons (for interest rates not easing immediately)...over a period of time the rates will come down," Sinha said.

The central bank would continue to act in order to ensure ample liquidity in the banking system, through conventional and unconventional measures, said the RBI executive director.

Noting that a well-regulated banking industry has helped the country's economy to insulate itself from the present global financial turmoil, Sinha said central banks across the world are acting in concert to avoid such a turmoil in future.

Banks need more capital to survive in difficult times and should focus on capital-building in 'good times', he said.

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