Skip to main content

RBI's Asset Quality Review May Affect Some Banks'

The asset quality review process of the Reserve Bank of India will take a toll on some banks, Deputy Governor SS Mundra has said.

“If you look at the results which are coming in, you will find them as a mix kind of outcome,“ Mundra said at the first Banking Conclave organised by the Confederation of Indian Industry (CII). “That essentially reflects at what point of time the individual bank has started on this journey. If a bank has started on this journey a little earlier, probably the reflection is there in the result.“

He also said that all banks were on board and were adhering to the road map laid by the banking regulator.

RBI had recently asked banks to clean up their balance sheets by March 2017 and provision for those losses before the end of the current fiscal year.

Mundra added that RBI would consider whether the steep bad loan numbers would trigger its restrictions on lending activities.

“PCA (prompt corrective action) is a comprehensive framework, which is trend over a period of time,“ Mundra said. “Single isolated indication really does not reach to a PCA level. The banks are in the process, once the industry cycle is completed, we will have a relook and assess what has to be done going forward.“

With many banks showing gross NPA levels as high as 10% of the total loans, RBI's prompt corrective action plan can technically kick in, which would put restrictions on the lending activities of banks.

Gross NPAs plus written off assets and restructured assets accounted for 14.1% of total bank loans as on September 2015, against 13.6% in March 2015, said Mundra.

However, for public sector banks, the total stress (GNPA plus written off assets plus restructured assets) was at 17% of total loans as on September 15. For private banks, that number was at 6.7%. The medium industries showed the highest stress, with 31.5% of its loans being stressed while 23.7% of loans to large industries were stressed, added Mundra. A large part of the write-off, howe ver, is technical and more of a balance sheet management issue, he noted.

Allaying fears on the system-wide bad loan stress ailing the banking system, Mundra said prevention was better than cure.

“Be assured that the present ailment is well within cure and the treatment is being administered,“ he said. “While the medicine is important, the willpower of the patient has its own importance. While we are administering the medicine, there is a complete willingness of all the affected persons.“ 

The Economic Times, New Delhi, 12 Feb 2016

Comments

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...

Luxury carmakers urge clarity on GST rates to boost festive season sales

  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...

Sebi proposes tighter norms for green bond third-party reviewers

  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...