raghuram rajan : interesting, profitable, and challenging – banking in india today address by dr raghuram rajan, governor of the reserve bank of india, at the ficci - iba ( federation of indian chambers of commerce & industry – indian banks ’ association ) annual banking conference, mumbai, 16 august 2016. * * * thank you for inviting me to give this address to the ficci - iba annual global banking conference. perhaps the most important issue on the minds of bankers, given the results season, is the asset quality review initiated in early 2015 - 16. it has improved recognition of npas and provisioning in banks enormously, and many of you have fully imbibed the spirit of the review. some banks have taken significant steps in recognizing incipient stress early. now focus should move more to improving the operational efficiency of stressed assets, and creating the right capital structure so that all stakeholders can benefit. this implies simultaneous action on two fronts. where necessary, new project management teams have to be brought in, sometimes as owners, and where this is not possible, as managers. a creative search for new management teams, including the possible use of public sector firms or private sector agents, is necessary, as are well - structured performance incentives for non - owner teams such as bonuses for meeting cash flow / profit benchmarks and stock options. of course, if the existing promoters are capable and reliable, they should be retained. equally important, the capital structure should be tailored to what is reasonable, given the project ’ s situation. if the loan is already an npa, there is no limit to the kind of restructuring that is possible. if it is standard but the project is struggling, we have a variety of schemes by which a more sensible capital structure can be crafted for the project. these schemes include the 5 / 25, the sdr, and the s4a. a caveat is in order, though. some of the current difficulties with stressed loans come from an unrealistic application by banks of a scheme so as to prevent a loan turning npa, rather than because of a carefully analyzed bank effort to effect management or capital structure change. rbi will continue monitoring to see that schemes are used as warranted, and targeted at promoters who are cooperative and able rather than misusing the system. i am sure, though, that you want to look beyond stressed assets to growth. these are interesting, profitable, and challenging times for the financial sector.

overseas projects. in 1992, the “ automatic route ” for overseas investments was introduced and cash remittances were allowed for the first time. nonetheless, the total value was restricted to us $ 2 million with a cash component not exceeding us $ 0. 5 million in a block of 3 years. phase ii ( 1995 to 2000 ) : creation of a fast track route in 1995, a comprehensive policy framework was laid down and the work relating to approvals for overseas investment was transferred from ministry of commerce to the reserve bank of india to provide a single window clearance mechanism. the policy framework articulated a cohesive approach that was flexible enough to respond to likely future trends. it reflected the need for transparency, recognition of global developments, capturing of indian realities and learning of lessons from the past. the basic objectives of the policy, inter alia, was to ensure that such outflows, were determined by commercial interests but were also consistent with the macroeconomic and balance of payment compulsions of the country, particularly in terms of the magnitude of the capital flows. in terms of the overseas investment policy, a fast track route was adopted where the limits were raised from us $ 2 million to us $ 4 million and linked to average export earnings of the preceding three years. cash remittance continued to be restricted to us $ 0. 5 million. beyond us $ 4 million, approvals were considered under the “ normal route ” approved by a special committee comprising the senior representatives of the reserve bank of india ( chairman ) and the ministries of finance, external affairs and commerce ( members ). investment proposals in excess of us $ 15 million were considered by the ministry of finance with the recommendations of the special committee and were generally approved if the required resources were raised through the global depository route ( gdr ) route. in march 1997, exchange earners, other than exporters, were also brought under the fast track route. indian promoters were allowed to set up second and subsequent generation companies, provided the first generation company was set up under the fast track route. a series of measures to encourage the software industry in india to expand capacity, reduce costs, improve quality and also invest abroad were put in place. as part of the reforms bis central bankers ’ speeches process preceding the introduction of fema, the neutrality 1 condition attached to the overseas direct investment was done away with in 1999. the scope for outward fdi, however, expanded significantly after the introduction of the foreign exchange management act ( fema ) in june