Bad loan situation not alarming: Rai

According to Rai, consolidation of banks is a 'secondary' issue and bad loans, vacant management positions are priorities

Banks Board Bureau (BBB) chairman Vinod Rai said on Friday that the bad loan situation in the country’s banking system is not alarming and public sector banks have their strategies in place to tackle the stressed asset woes.

“All of them are suffering from stressed assets. They are across infrastructure sectors. But, each bank has a strategy to resolve which would be different from every other bank. That is what we discussed,” Rai, a former Comptroller and Auditor General, told reporters after a day-long meeting of the BBB with heads of state-owned banks in New Delhi on Friday.

Asked if the non-performing asset (NPA) situation of banks has reached an alarming level, he replied in the negative, saying: “Banks will come out of this.”

On the need for another large asset reconstruction company (ARC) in India, he said: “The issue was not raised. There are already three-four ARCs that exist here. There is no need to create another ARC.”

According to Rai, consolidation of banks is a ‘secondary’ one and that bad loans and vacant management positions are a priority. “Right now, it is a question of trying to resolve the bad assets and ensuring vacancies get filled up. Consolidation and all other issues are being discussed. It is a work in progress.”

Gross NPAs of public sector banks rose from Rs 2.67 lakh crore in March 2015 to Rs 3.62 lakh crore in December 2015. Asked if state-owned banks would need more than Rs 25,000 crore capital infusion budgeted for the current financial year, Rai said it the government would take a decision after the banks declare their fourth quarter results.

Rai met the heads of a number of public sector banks, including State Bank of India chief Arundhati Bhattacharya. “We discussed standard things like HR issues, board vacancies, NPAs, etc,” Bhattacharya said after the meeting.

As of December 2015, SBI's portfolio quality declined with gross NPAs at 5.10 per cent of gross advances against 4.90 per cent a year ago. The gross NPAs in absolute terms, which represent a portion of bad loans, stood at Rs 72,792 crore at the end of December 2015 for India’s largest lender, up from Rs 61,991 crore in the year-ago period.

On the proposed dilution of the government’s stake in IDBI Bank, Rai said the disinvestment could happen in less than six months but added it was not an issue under BBB’s domain.

The government had in December 2015 given approval to IDBI Bank for raising Rs 3,771 crore during the current year, by way of qualified institutional placement, a move which will dilute its holding by 26 per cent in the lender. The Centre’s holding in the bank stands at 80.16 per cent.

The BBB was constituted earlier this calendar year to help the government select heads of public sector banks and financial institutions, and to assist banks in developing strategies with regard to capital raising and consolidation.

Besides Rai as chairman, the BBB has three ex-officio members and an equal number of expert members which include ICICI Bank's former joint managing director H N Sinor, Bank of Baroda's former chairman and managing director Anil K Khandelwal and rating agency Crisil’s former chief Rupa Kudva.

BBB’s ex-officio members are Secretary, Department of Public Enterprises, Financial Services Secretary and deputy governor of the Reserve Bank of India.