A reform that demands more attention

Business Standard     30th October 2020     Save    
QEP Pocket Notes

Context: The Resolution Framework announced for COVID-affected stressed firms remains ineffective due to the lack of awareness 

Objectives of the resolution framework announced by The Reserve Bank of India (RBI)

  • Identification pf sectors impacted only due to Covid-19.
  • Ensuring quick decision-making and faster availability of support: An asset need not undergo process related to stressed assets if the asset was standard at the time of resolution.
  • Relieving the banking system from stress: It must be recognized that admitting others in the guise of Covid-19- related stress would put the banking system in significant stress. 

Problems related to the resolution framework 

  • Lack of Coverage: Some sectors were stressed even before the pandemic and needed a different treatment available in the existing regulations and for below-standard or non-performing assets. 
  • Lack of awareness: Discussions on Real estate, non-banking financial companies, power, infrastructure dominated the media coverage.

Steps to make the programme better and inclusive

  • Increase awareness: with the help of following two types of stakeholders.
  • Associated Chambers of Commerce of India, Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry should educate and assist the members in availing rightful benefits of the programme
  • Bankers Association and the banking companies: should communicate to the borrowers with established track record through the branch network of the banking system. 
    • The government and the Ministry of Finance can assist in the awareness creation by methods normally deployed to communicate the benefits of the reform.

Conclusion:  These kinds of reforms will be successful depending on the number of beneficiaries rather than on the total amount of relief sought.

QEP Pocket Notes