Reserve Bank Deputy Governor Anand Sinha today said banks’ asset quality has deteriorated in recent times due to the gloomy economic conditions but noted that there is enough capital with the lenders to take care of the situation. “Yes, there is pressure on asset quality and at the same time we have enough capital to sustain that,” he said.
Stressing on the need for a better management of the stress in the system, Sinha also asked banks to keep away from “controllable” factors. Citing the rise in debt restructuring, he said an analysis of cases by RBI has found that banks have financed highly leveraged corproates, some corporates have open positions in the forex market in spite of cautions from RBI and there has been diversion from purpose of loans.
“There are so many controllable factors which can change situation considerably, can soften the blow,” he said. Sinha said debt restructuring is a very legitimate way of dealing with stress but advised banks to be prudent and do it only when needed.
“CDRs (corporate debt restructuring) are on a rise and they do represent the stress in the system…credit administration needs to be improved so that these things can be controlled,” he said.
Net NPAs of the system has crossed over 3.5 percnt in FY12 from 2.3 in the previous year, while the CDR book has crossed 5.7 percent of the total loan book of banks as of the end of the June quarter.
Sinha also advised banks to keep away from the high cost and short-term bulk deposits, especially given the growing wedge between the deposit and credit growths in the system.
On the economic front, he said the recent reform measures will help by reversing the negative sentiments but added that growth during the fiscal will continue to remain below the trend. “The domestic growth is expected to remain below its trend level in 2012-13 as well.
However, the recent measures taken by the government are likely to reverse the sentiments,” he said. He said the fiscal policy had a lot of headroom, which could make it possible for a revival in growth after the 2008 crisis, but the same headroom has “exhausted” at present.
The Reserve Bank is constrained to not ease rates and prop up growth given the high inflation and the twin deficits on the current account and fiscal front, he said.