Mor committee suggestions credit positive for banks: Moody's

Tags: News
Stating that the recommendations of the Nachiket Mor committee on financial inclusion are credit positive for banks, international rating agency Moody's has stressed that the main issue is implementation of the panel's politically sensitive suggestions.

"The recommendations in the report, if fully implemented, would be a significant credit positive overhaul of the Indian banking system. The key issue, of course, is its implementation, since some of these issues are politically controversial," Moody's Investors Service said in a note.

It pointed out that proposals on priority sector lending (PSL), including deregulation of interest rates, are welcome and will benefit state-run ones which have higher stress on their PSL books.

"Deregulating interest rates on PSL loans, so that banks have the flexibility to price risk as they deem appropriate, is one of the key recommendations in the report and is credit positive for India's banks," it said.

The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, headed by ex-ICICI Bank executive Mor, presented its report last week. It recommended that banks be asked not to lend below the base rate and makes a case for benefits such as interest subvention or loan waivers to be directly passed to the borrowers.

According to the agency, the historical data around giving loan waivers to farm debt have created a "moral hazard" among borrowers, which results in non-repayment.

The note said the recommendations made by the committee are in line with the general direction of banking reforms initiated by RBI Governor Raghuram Rajan after he assumed office in September.

"Although we believe that the probability of full implementation of the recommendations is low because of political resistance, nevertheless the report increases the probability of some reform," it said.

EDITORIAL OF THE DAY

  • Protocols need to be quickly put in place for the success of Digital India

    The government has kicked off Digital India initiative in style. Companies too have queued up in large numbers with bagfuls of money.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Simon J Evenett

Will Germany be able to deliver?

The BRICS aren’t the only countries whose stature has grown ...

Rajgopal Nidamboor

Up the ante of your conscious existence

It sounds cryptic, but is not as complex as it ...

Gautam Gupta

The ‘fake’ issue needs to be taken seriously

E-commerce players are witnessing unbelievable growth globally. Competition is increasing ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture