Dhingra Classes Raisinghnagar: English Vocab

RBI’s new NPA Rules May Hurt But Will Drain The Swamp

It has been commented, after a fashion, that the Reserve Bank of India (RBI)’s new NPA rules are akin (Essentially similar, related, or compatible) to kicking a man while he’s down. The banking system is grappling (Struggle to deal with or overcome (a difficulty or challenge)) with a Rs10 trillion bad loan problem which is still some way from being sorted despite the new bankruptcy framework. The government extended a lifeline with its Rs2.11 trillion bank recapitalisation plan, but even that may have been yanked (Pull with a jerk) away because a bad loan pile-up isanticipated (To give advance thought, discussion, or treatment to) with the introduction of these new norms.

With that the hope of a revival in bank credit growth is blown away, which will alsocrimp (A restriction; obstacle, limitation) economic growth, goes the argument. But that’s taking the short-term view. Yes, slippages will rise and so will provisioning. But in the long term, the central bank will get credit for pressing reset on the banking system.

The new rules will instil (Gradually but firmly establish (an idea or attitude) a sense of transparency, more investor confidence in the financials of banks and change the way banks do business. There will be greater prudence (Skill and good judgment in the use of resources) in lending. Cowboy lending, especially towards larger projects where banks lack the capacity to conduct proper appraisals, could be on their way out. Chief financial officers will read loan covenants (A written agreement or promise usually under seal between two or more parties especially for the performance of some action) more carefully because the tolerance for defaults is being lowered considerably. They will need to ensure loan repayment terms are more realistic.

Banks will also pay better attention to developing risk management frameworks, something the government has been trying to push as part of its banking reforms package along with recapitalisation.

The new norms will also instil some discipline in the corporate sector on honouring debt servicing commitments on time. With the insolvency and bankruptcy code being the cornerstone, there are higher chances of a company getting liquidated, prompting better promoter behaviour.

While bank books might get worse over the next 12 months, in the longer term, the new NPA rules will ensure that the books reflect actual underlying asset quality. There will be no place to hide as the new norms are quite inflexible towards larger loans that come under distress. Banks get six months to resolve such loans else they have to be forwarded to bankruptcy court.

A second reason for greater transparency is the introduction of weekly reporting for defaults over Rs5 crore to RBI’s centralized database, CRILC (Central Repository of Information on Large Credits). More information sharing will mean that there is less scope for so-called divergences—the difference between a lender’s and RBI’s assessment on loans turned bad. Remember, just last week, State Bank of India reported a divergence of Rs23,239 crore at the end of March 2017.

Pushing large NPAs to the bankruptcy courts was the first sign that the tolerance of banks towards large defaulters as we knew it had ended. The current move institutionalizes this intolerance towards default. There is a risk that it may crimp business sentiment as it does not distinguish between genuine and wilful default. But that’s a debate for another day. The need of the hour is firefighting.

The new norms reiterate signals emanating (To come out from a source) from central bank headquarters for some time: we are no longer interested in regulatory forbearance. RBI deputy governor Viral Acharya’s comments three weeks earlier about rising bond yields is another example of RBI’s intolerance towards regulatory forbearance. It refused to ease the pain of banks who took a hit on their treasury books from rising yields.

Regulatory forbearance is one reason Indian banks have been burdened with a Rs10 trillion bad loan pile (A large amount of something) in the first place. Doing away with it is the first step in ridding the economy of a devil that comes back to haunt it every once in a decade or so.

Courtesy-Live Mint (National)

1. Akin (adjective) : (Essentially similar, related, or compatible) (अनिवार्य रूप से समान, संबंधित, या संगत)

Synonyms: Affiliated, Related, Allied, Kindred, Cognate, Analogous, Equivalent

Antonyms: Unrelated, Dissimilar, Distinct, Alien, Incongruous

Example: When the Oscar-winning actress checked into the hotel, she received treatment akin to the attention normally given to members of a royal family.

Verb forms: Akin (adverb)

2. Grappling (noun) : (Struggle to deal with or overcome (a difficulty or challenge).) (जूझना)

Synonyms: Struggle, Conflict, Strive, Effort, Scramble

Antonyms: Relax, Peacefulness

Example: It might not be the best idea to grapple with someone twice your size.

Verb forms: Grapple, Grappled, Grappled

Related words: Grappler (noun)

3. Yanked (verb) : (Pull with a jerk) (झटका देना)

Synonyms: Jerked, Flicked, Jolted, Jostle, Tugged, Dragged

Antonyms: Pushed, Unflustered

Example: The company tried to yank older workers into the tech world by providing them with intense computer classes.

Verb forms: Yank, Yanked, Yanked

Related words: Yank (noun)

4. Anticipate (verb) : (To give advance thought, discussion, or treatment to) (प्रत्याशा करना, आशा रखना)

Synonyms: Expect, Hope, Forecast, Prognosticate

Antonyms: Unexpected, Doubt, Sudden, Accidental

Example: The National Weather Service’s main job is to track dangerous weather patterns and anticipate their routes.

Verb forms: Anticipate, Anticipated, Anticipated

Related words: Anticipatable (adjective) Anticipator (noun)

5. Crimp (verb) : (A restriction; obstacle ,limitation) (सिकोडना,प्रतिबंध होना)

Synonyms: Constraint, Corrugate, Restrict, Conditioned, Limitation

Antonyms: Accessible, Approved, Authorized

Example: The dollar's recent strength is crimping overseas sales and profits

Verb forms: crimp crimped, crimped

Related words: Phrase :- put a crimp in (have an adverse effect on.)

Crimper (noun)

6. Instil (verb) : (Gradually but firmly establish (an idea or attitude)) (प्रबाव डालना)

Synonyms: Inculcate, Imbue, Indoctrinate, Implant

Antonyms: Neglect, Drain, Take Out

Example: They hope that their work will instil a sense of responsibility in children.

Verb forms: Instil, Instilled, Instilled

Related words: Instiller, Instillment (noun)

7. Prudence (noun) : (Skill and good judgment in the use of resources) (विवेक, बुद्धिमानी)

Synonyms: Alertness, Care, Carefulness, Cautiousness, Chariness, Circumspection,

Antonyms: Brashness, Carelessness, Heedlessness, Incaution

Example: My prudent uncle pays for everything with cash so he will not build up a pile of debt.

Related words: Prudent, Prudential (adjective)

8. Covenants (noun) : (A written agreement or promise usually under seal between two or more parties especially for the performance of some action) (प्रतिज्ञापत्र, प्रसंविदा)

Synonyms: Contract, Agreement, Treaty, Deal

Antonyms: Disagreement, Divergence, Dispute

Example: According to the property covenant, all residents must pay a sixty-dollar monthly fee in exchange for sanitation and water.

Verb forms: Covenant, Covenanted, Covenanted

Related words: Covenantal (adjective)

9. Emanate (verb) : (To come out from a source) (निर्गत होना, निकालना, उद्‍भव होना)

Synonyms: Originate, Emerge, Emit Proceed

Antonyms: Withdraw, Terminate, Conceal

Example: After the hurricane, the east coast insurance office will process any claims that emanate from within the southern portion of the United States.

Verb forms: Emanate, Emanated, Emanated

Related words: Emanative (adjective) Emanator (noun) Emanatory (adjective)