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If RBI can’t force banks to provision then lenders can’t be safe

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While it is good news that the central bank has finally challenged the NCLAT order that prevents RBI from, without the NCLAT’s permission, forcing banks to declare their loans to IL&FS as NPAs—and then make provisions for them—it is unfortunate that the NCLAT seems to be determined to stick to its position. In its last hearing, the NCLAT said RBI was making “it a prestige issue”. As a regulator, it is RBI’s job to ensure the banking system is safe; if it is not, crores of households are in danger of losing their life’s savings if they are deposited in banks. For the banking sector to be safe, banks need to honestly state what their financial position is—if this is precarious, owners, like the government or private sector entities, bring in more capital—and, as part of this exercise, banks need to declare NPAs on time and start making provisions for them.........

© The Financial Express