RBI Deputy Governor Viral Acharya on Tuesday said initiatives like Insolvency and Bankruptcy Code and norms for prompt recognition of bad loans bode well for financial stability despite short-term pain.
In the foreword of the RBI’s Financial Stability Report, Acharya also regretted that amid ongoing churning in the financial sector, governance reforms in the beleaguered public sector banks (PSBs) have taken a backseat.
Domestically, he said the economy appears to be gathering strength although global commodity price swings and turbulent capital flows are a constant reminder to our fast-growing economy that there can be little scope for complacence, if at all any.
Some of the structural vulnerabilities of the banking sector in the form of legacy impairments are finally being tackled headlong, Acharya said.
“The revised framework of February 12th for dealing with stressed assets issued by the RBI should incentivise early identification and resolution of credit risk.
“The IBC, 2016 is emerging as the lynchpin for resolving stressed assets in a time – bound manner. These developments bode well for allocative efficiency and financial stability in the medium term even if there is some short-term pain in the process,” he said.