High NPAs a legacy issue, says RBI governor

Urjit Patel to reveal amount of demonetised currency returned only after final figures are ready

Reserve Bank of India (RBI) Governor Urjit Patel on Saturday supported Union Finance Minister Arun Jaitley and said the ballooning non-performing assets (NPAs) of public sector banks was a legacy issue being recognised and reported in recent times.

The board of the central bank met in New Delhi on Saturday. After the meeting Patel addressed a new meeting and exhorted banks to cut lending rates.

On demonetisation, he said the amount of old notes returned to the banks would be revealed only after RBI was absolutely sure of the calculations. Prime Minister Narendra Modi had on November 8 last year announced the scrapping of old Rs 500 and Rs 1,000 notes. Those who had money in these denominations could deposit these at their banks or the RBI branches till December 30.

Patel said sectors in which NPAs had emerged over the years had long gestation periods for projects, many of which were funded before 2011-12. “Therefore, almost by definition, a disproportionate amount of that is a legacy issue, although the recognition, the recording and reporting of these have taken place relatively recently,” he added.

Jaitley, who was also at the board meeting, had earlier in the week said in Parliament that NPA figures had increased over 2015, 2016 and 2017 because more bad loans from the United Progressive Alliance government’s time in office had been discovered and reported.

“These are all loans which have been continuing and what’s have been added is either the discovery of some non-performing assets as a result of some exercise that RBI had directed to be undertaken. Also, the interest factor has increased,” Jaitley said after the meeting on Saturday.

The “exercise” Jaitley was referring to is RBI’s Asset Quality Review (AQR), after which a huge jump in NPAs was reported. In the third quarter of FY16 alone, NPA rose over Rs 1 lakh crore.

Jaitley also said he wanted RBI to cut interest rates but respected its decision to hold status quo in its last two Monetary Policy Committee meetings. “All finance ministers have a perpetual desire (of lower repo rate) but at the end of the day we all respect the decision that RBI takes,” he said.

On when the RBI will announce the figures of old notes deposited with banks since November 8, Patel said: “Given that the window is open until March 31 (for non-resident Indians), and then at a lower level, until June 30 we need to be careful and try as hard as possible that this is a number that is not a mere estimate but a verifiable number, both physically and in accounting stance.”

RBI released a statement in January in which it said the numbers will be released soon. Business Standard had reported that Rs 14.5 lakh crore (94 per cent) of scrapped notes, out of the Rs 15.4 lakh crore demonetised, had come back between November 10 and December 30.

Patel said banks had benefited from the influx of low-cost deposits and RBI’s previous repo rate cuts. Hence, they should reduce lending rates to push credit demand in laggard segments. “The weighted average lending rate reduction has been considerably less, given that we feel there is some scope for further reduction. If you see, for sectors such as housing and personal finance the reduction has been much more than for other sectors by the same banks,” he said.

The media briefing on Saturday was a tad unusual. Unlike previous instances in which the finance minister usually addresses the meeting, this time, Patel took the questions directly.