Manage your credit well to curb NPAs: RBI to banks

Mumbai: Flagging the surge in bad assets levels and requests for loan restructuring, RBI today said NPA levels are higher now and “there is a stress” in the financial system.

“Deteriorating asset quality of banks can be contained by substantially upgrading their credit management systems,” Reserve Bank deputy governor Anand Sinha said in his address on the concluding day at the three-day Ficci-IBA banking summit in Mumbai.[caption id=“attachment_446692” align=“alignleft” width=“380”] The RBI logo. Reuters[/caption]

Though Sinha was quick to add that domestic financial system remains robust, as per the RBI stress tests, he said, “the downside risks to financial stability have worsened due to several global and domestic factors. Our banks are no doubt strong, but there are many challenges we have to live with.”

Flagging the surge in bad assets levels and requests for loan restructuring, the deputy governor said, “The NPA levels are higher than what they were a while back. So there is definitely a stress in the system. The amount of restructured assets has gone up.

“Restructured assets, whether you call it standard or sub-standard, the fact is that even if they are standard, they represent stress in the system,” he told reporters later.

While the overall bad assets in the system rose to 5.7 percent in FY12, from 4.2 percent a year ago, the quantum of restructured loans is set to cross Rs 2 lakh crore by the end of this fiscal.

Listing out the challenges before the domestic banks, Sinha said the immediate challenge facing the banks is arresting the deteriorating asset quality, while the mid-to-long term challenge is to raise capital to meet the Basel III norms.

“Overall improvement in the risk management systems, upgrading technological platforms and building up of specialised skills in the banking system are the challenges which will distinguish the more successful ones from the others. It is important that competitive pressures are not allowed to override basic prudence,” Sinha warned.

Opening the event on Tuesday, Governor Duvvuri Subbarao had pegged the overall capital needs, including non-core capital, of the banks at Rs 5 lakh crore, out of which the state-run banks need a whopping Rs 90,000 crore from the government in fresh core capital.

Considering the precarious finances of the government, the governor had suggested that the government could bring down its stake below the mandated 51 percent in banks which would bring down the Basel III burden to Rs 70,000 crore on the government.

Later addressing the media, Sinha said there are more downside risks on the macroeconomic front as the growth has slowed down partly because of the world situation.

On the global front, he said one of the most important challenges he sees in the days to come is the exit from the accommodative policies adopted since the 2008 crisis management phase and to ensure that financial imbalances which led to the present crisis, don’t build up again.

The comments came on a day when the European Central Bank announced renewed bond purchases to help boost the sagging euro zone economies and the US Fed is almost certain to announce the third round monetary booster to the American economy next week.

PTI