, it would be good to have a quick look at the resolution frameworks we had in place before. the normal principle for restructuring is that an account should be downgraded if any amount is forborne. the reserve bank put in place, in august 2001, the corporate debt restructuring ( cdr ) mechanism for restructuring of debt without the need for an asset quality downgrade if the restructuring plan met certain conditions. the cdr mechanism worked well initially. in later years, its asset quality forbearance was used more as a tool for avoiding recognition of nonperformance of stressed assets and less for their effective resolution. therefore, in may 2013, we announced the decision to withdraw the forbearance on asset classification effective april 1, 2015. however, in the wake of the mounting npas, the reserve bank allowed asset classification benefits for certain types of restructuring schemes. these included the strategic debt restructuring ( sdr ), flexible structuring of project loans and the scheme for sustainable structuring of stressed assets ( s4a ). thus, while the principle that a restructuring would call for downgrade of the asset was in place, a window of exception was opened, provided the contours of restructuring met certain conditions. 9. it has been our view that the restructuring schemes were required at a time when we did not have an effective bankruptcy law in place. the schemes essentially created a framework for resolution that should normally happen under the aegis of an insolvency and bankruptcy law. the focal points of the schemes were deep restructuring of stressed assets, change of ownership / management of stressed borrowers, optimal structuring of credit facilities, and haircuts wherever the exposures were economically unviable. 10. in 2016, the insolvency and bankruptcy code, 2016 ( ibc ), which is a comprehensive bankruptcy code, was enacted and notified. the code envisages timely resolution of borrower defaults through collective decision making by the creditors. the code is both 2 / 9 bis central bankers'speeches process - oriented and time - oriented. it is - process - oriented, in that it lays down, in detail, the various steps that need to be followed once a borrower is admitted for insolvency ; and it is timeoriented because it specifies strict timelines for insolvency resolution, failing which the borrower would have to be taken into liquidation. 11. the general approach of bankers to stress in large

made wide - ranging recommendations for improving and strengthening its functions. let me shortlist a few key areas, which must concern us at this stage. the indian banking system is still perceived as a relatively high cost banking. this is because of the relatively high operating cost of the banking system. a comparative analysis indicates that while the average operating cost of banks as a percentage of assets was about 2. 3 % in india during 1990 – 91 to 1995 – 96, it was 1. 1 % in china, 1. 6 % in malaysia, 1. 9 % in thailand, 1. 0 % in japan and 2. 1 % in g10 europe. one of the major problems posed by a relatively high intermediation cost in our case is that it gives rise to uneconomical banking. it raises the necessity of maintaining a relatively high interest income spread and a high real lending rate. this adversely affects financial intermediation and growth in the economy. operating costs depend on labour productivity, technology, innovation and organisational effectiveness of a bank to harness various static and dynamic economies from the production process. on the economy - wide scale, these factors differentiate the weak from the strong banking system and provide internal strength and stability to the system. without gaining sufficient advantage in this respect, it is difficult to think of a significant improvement in the banking system in future. a key issue relates to the banking sector ’ s non - performing assets ( npas ). the amount of gross and net npas have been on the rise, although the rate of their growth has been below the overall rate of expansion of advances. apart from absolute size, the distribution of non - performing – 5 – assets is skewed across banks. still a large number of public sector banks have net nonperforming assets ranging between 10 to 20 % of net advances. the narasimham committee has underlined the need to reduce the average level of net npas for all banks to 3 % by 2002 and to zero for banks with international presence. i think this is an important requirement for our banking system and is crucial to maintaining the viability of the system in future. a two - pronged strategy identified by the committee viz., to reduce the backlog npas and improve the management efficiency and stricter enforcement of prudential norms, has to be acted upon to deal with this challenge. another critical aspect is the soundness of the banking system and how this is reflected in the practices and principles followed by