Economic Survey flagged concerns over power sector NPAs

The twin balance sheet problem was responsible for slowdown in credit growth

The Survey said a slowdown in credit offtake was more pronounced in the case of public sector banks than their private sector counterparts. The twin balance sheet problem (stress in both banks and companies) was responsible for slowdown in credit growth, it noted. 

The gross non-performing assets (NPA) ratio of the banking sector rose from 9.2 per cent in September 2016 to 9.5 per cent in March 2017. Going forward, a shift in renewable energy will render some conventional energy assets “stranded” and this may raise banks’ NPAs further, the Survey said. 

Already, the NPA ratio in exposures related to electricity generation and the coal sectors are 5.7 per cent and 19.8 per cent, respectively. On the ordinance passed by the Centre to empower the Reserve Bank of India (RBI) in stressed assets resolution process, the Survey said it would enable RBI to take a targeted approach and deal with NPAs quickly. 

The empowered Oversight Committee would be able to bypass “three factors” that have so far slowed the resolution process. “One, stop ‘free-riding’ by lenders who didn’t participate. Two, compliance after an agreement has been sealed. Three, certify the process in order to allay fears of future investigations.” 

The ordinance would help effective resolution, particularly in consortiums or multiple banking arrangements, as RBI would be empowered to intervene in specific cases of resolution of NPAs, to bring them to a definite conclusion.