RBI chief Urjit Patel calls for re-capitalisation of nationalised banks to tackle deteriorating NPAs

Reserve Bank of India (RBI) Governor Urjit Patel on Saturday called for recapitalisation of state-run banks to help them resolve the NPAs issue in a time-bond manner as bad loans at 9.6 percent of the system is not acceptable.

PTI August 19, 2017 13:17:54 IST
RBI chief Urjit Patel calls for re-capitalisation of nationalised banks to tackle deteriorating NPAs

Mumbai: Reserve Bank of India (RBI) Governor Urjit Patel on Saturday called for re-capitalisation of state-run banks to help them resolve the NPAs issue in a time-bond manner as bad loans at 9.6 percent of the system is not acceptable.

"Gross NPA ratio of the banking system at 9.6 percent and stressed advances ratio at 12 percent as of March 2017 on the back of persistently high ratio in the past few years, is indeed a matter of concern," Patel told a gathering of bankers and industrialists in the presence of finance minister Arun Jaitley in Mumbai.

Admitting that the balance sheet of most state-run banks are not healthy enough to take large haircuts, which is a corollary of any bad loan resolution, he called for their recapitalisation.

"NPA resolution would necessitate a higher re-capitalisation of these banks," he said, adding "Government and the RBI are in dialogue to prepare a set of measures to enable state-run banks to shore up the requisite capital in a time bound manner."

RBI chief Urjit Patel calls for recapitalisation of nationalised banks to tackle deteriorating NPAs

File image of RBI governor Urjit Patel. Reuters

Regulatory or rather the economic challenge in dealing with the NPA issue gets accentuated when seen agains the capital position of some of the banks, particularly public sector banks, he told an insolvency summit, hosted by industry lobby CII and chaired Jaitley.

The RBI chief said as much as 86.5 percent of GNPAs are accounted by large borrowers.

"Swift time bound resolution or liquidation of stressed assets will be critical for delogging the balance sheet and for efficient reallocation of bank capital," Patel said.

The government and the RBI are working together to comprehensively address the issue through a multi-pronged approach, he added.

Stating that the success and credibility of all the NPA resolution efforts will be critically contingent on the strength of public sector banks' balance sheets to absorb the costs, he said any resolution will involve deep haircuts.

"It is clear that state-run banks will need to take haircuts on current exposures under any resolution plan agreed within or outside the IBC. Higher provisioning requirements on this counts as well as other factors will affect the capital position of several banks," he said.

The measures could include a combination of capital raising from the market, dilution of government holding, additional capital infusion by the government, merger based on strategic decision and sale of non-core assets.

The RBI chief also blamed lenders for the mess, saying their poor credit appraisal systems have led to the pile of bad loans, which tops over Rs nine trillion now.

Updated Date:

also read

Significant progress on FATF's first action plan: US on Pakistan's grey list status for terror financing
World

Significant progress on FATF's first action plan: US on Pakistan's grey list status for terror financing

The global body against money laundering and terror financing had also asked Pakistan to work to address its strategically important deficiencies

Why Mastercard earned RBI ire and what's next for the payment network processor in India
Business

Why Mastercard earned RBI ire and what's next for the payment network processor in India

The failure of Mastercard to store data of card transactions done in India within the country itself is in direct violation of India's Personal Data Protection Bill

Tokyo Olympics 2020: Inside the herculean and loss-making task that is hosting the Summer Games
Sports

Tokyo Olympics 2020: Inside the herculean and loss-making task that is hosting the Summer Games

Summer Olympics, a quadrennial event, is the grandest sporting spectacle in the world. It draws plenty in stadiums and on TV but still remains a massive loss-making venture for hosts.