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RBI Guv calls for recapitalisation of banks for time-bound NPA resolution

Credibility of NPA resolution efforts will depend on PSBs' ability to absorb costs

Press Trust of India  |  Mumbai 

Illustration: Ajay Mohanty
Illustration: Ajay Mohanty

Reserve Governor on Saturday called for recapitalisation of state-run to help them resolve the NPAs issue in a time-bound manner as at 9.6 per cent of the system is not acceptable.

"Gross ratio of the system at 9.6 per cent and stressed advances ratio at 12 per cent 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 minister here.


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

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

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

The RBI chief said as much as 86.5 per cent of are accounted by large borrowers.

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

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

Stating that the success and of all the 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 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 holding, additional capital infusion by the government, based on strategic decision and sale of non-core

The RBI chief also blamed for the mess, saying their poor credit appraisal systems have led to the pile of bad loans, which tops over Rs 9 trillion now.

First Published: Sat, August 19 2017. 13:33 IST
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