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RBI received a notice from Madras High court in response to PIL challenging NPA norms

Madras High Court

The Madras High Court today issued a notice to the Reserve Bank of India (RBI), asking it to respond to a Public Interest Litigation (PIL) filed with the Court challenging the Non-Performing Assets (NPA) norms set by the banking regulator.

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The notice was issued by Justice M M Sundresh and Justice R Hemalatha, confirmed the petitioner’s lawyer M R Venkatesh.

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The petitioner Rajaa R K had prayed to the Court to direct the banking regulator to form a committee to look at NPA classification norms and set new ones suitable to the Indian economy after considering the current circumstances.

The petitioner claims he is a Chartered Accountant who has serviced various public and private sectors, including the international ones. He argued that India’s NPA problem is a technical fallacy with no national or international basis and therefore is grossly misrepresented and exaggerated at the behest of the international financial sector.

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Madras High Court – He alleged that every sector of the Indian economy has been hit by the one-size-fits-all 90-day NPA rule which is grossly unjust and cripples the entire banking system. The rule applies to all industries irrespective of their nature, without considering the facts of the Indian economy. He added that the rule is either a direct consequence or the cascading effect of the blind application of the above NPA norms, and hence requires reconsideration.

The petitioner also argued that the NPA rule has had such a cascading effect that businesses become NPAs and are then subjected to the Insolvency and Bankruptcy Code (IBC). This forces the judicial system to devote its energies to resolving banking and business issues.

Madras High Court Consequently, the banks have reduced lending and businesses are sensitive to borrowing from banks, thus affecting the revenue of banks. This is the reason Indian banks have forced to reduce the interest on deposits, which have come down from 8 per cent in 2001 to 4 per cent in 2020, said in the petition.

Even though a bank serves social objectives through its priority sector lending, mass branch networks, and employment generation, maintaining asset quality and profitability is critical for its survival and growth.

 

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