The Reserve Bank of India was just getting back to its old habits — pampering the banks, after some ‘tough love’. Its actions of the past few weeks was about to earn it a moniker — Rollback RBI But deputy governor NS Vishwanathan seems to have saved the regulator the blushes, if the central bank stands by what he told the audience at the National Institute of Bank Management in Pune on Wednesday.Aspiration to get better is common, but people are hardly willing to change the way they operate. It is more so with banks. Few were willing to follow the RBI’s February 12 diktat on recognition of defaults. It scrapped the plethora of loans restructuring programmes that helped paper over problems rather than revive an enterprise. The more contentious issue was treating a borrower who misses payments as defaulter the very next day.Adopting these would mean loss of elbow room for corporates to game the system, and banks work harder and quicker to arrest a loan turning bad. No wonder lobbying was aggressive.The focus was on how banks would find it onerous to implement them. Also, some argue that genuine companies could carry the tag of a defaulter for factors beyond their control when they miss payments.But what they are not telling you is that to be classified as a non-performing loan the time limit is still 90 days. Medium and small enterprises are exempted from it. Be that as it may.Vishwanathan’s speech reveals the unscrupulous practice of big companies prevalent in the system for decades that no one of consequence spoke in public. “The data show that a large number of borrowers, even some highly rated ones, have failed on the one-day default norm,’’ said Vishwanathan.In plain English, it means financially sound companies are using the money they owe banks to invest and trade and make more money for themselves. Just imagine companies with a balance sheet size of thousands of crores keep the money that belonged to banks for 60 or 70 days and deploy them in treasury operations? Who would want to give up on that easy money?This 90-day window to be classified as bad debt was a money spinner for smart companies, but banks lost money even though it was not accounted anywhere.“This has got to change,’’ he said. “If borrowers fail to pay on the due date because of a cash flow problem, banks should see that as an early warning indicator warranting immediate action. If borrowers, with ability to pay on the due date, delay it routinely or because they see other arbitrage options, that must change, too.’’ This may have come quite late in the day, but thankfully it has.Vishwanathan has lifted the RBI stature a few notches after a sudden drop in the regulator’s credibility following flip-flops on provisioning requirements.Regulatory actions are seen by markets as a reasonably permanent one and millions of dollars ride on them. It is also a given that rules are implemented after rigorous research and debate. But some recent experience has been unpleasant.In January, deputy governor Viral Acharya whipped banks for seeking easing of mark-tomarket provisioning on their bond portfolios.“Interest rate risk of banks cannot be managed over and over again by the regulator,” Acharya told in January. “The regulator, in the interest of financial stability, is caught in such situations between a rock and a hard place….Recourse to such asymmetric options — heads I win, tails the regulator dispenses — is akin to the use of steroids.”After the March quarter losses, the RBI did what the banks asked for without sufficient reasoning, leaving investors and bankers confused.It was the same with provisioning for cases referred to bankruptcy courts. After sounding tough, banks were provided room to provide less.Attitude to correct mistakes deserve appreciation, but when it is done frequently it sends the wrong signal.The one-day default norm would end one of the worst corporate practices in the country. Hope it doesn’t get diluted.