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It is now up to banks to reorient their internal processes and risk management systems to sustain the improved performance and institutionalize best governance practices to be able to play more proactive and constructive role to accelerate flow of credit. Bank reforms is a journey in perpetuity that is set to continue.
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Thus, many weaknesses of banks have been addressed with continuing reforms and policy interventions. Loan recovery process has been strengthened by reinforced policy efforts in multiple ways and it shall continue. Summing up these measures have aided recovery of bad loans to the tune of up to Rs.5 trillion. Diplomatic channels were used to get back money from loan defaulters who fled the country.
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Debt resolution was further accelerated by improving legal ecosystem suitably amending Insolvency and Bankruptcy code – 2016 from time to time, strengthening debt recovery tribunals (DRTs) and legal reforms. In its first phase bad debts up to rupees two trillion will be resolved. Thrust on financial inclusion (FI), consolidation and capital infusion in Public Sector Banks (PSBs), formation of National Asset Reconstruction Company Ltd (NARCL) – bad bank designed to quickly resolve bad loans were steps in the right direction. The improved parameters partly reflect regulatory relief provided to banks during COVID-19 as well as fiscal guarantees and financial support given by the Government. Profitability metrics of several banks are also at highest levels in several years. Banks have also been prudent in raising capital. As per the early trends, the Gross Non-Performing Assets (GNPAs) and Capital Adequacy ratios (CAR) of banks have further improved in September 2021 from their levels in June 2021. It is noteworthy that due to consistent focus on bank reforms, policy support and timely regulatory interventions, banks could weather the COVID-19 shock better than expected. While speaking on ‘Creating synergies for seamless credit flow and economic growth’, at the concluding session of a symposium on ‘ Build Synergy for Seamless Credit Flow and Economic Growth’, honourable Prime Minister was categorical that banks should move from the role of ‘loan approvers’ to proactively ‘partnering with loan seekers’ to develop base of wealth creating entrepreneurs who can potentially add to employment opportunities and help build a self-reliant country.