CII suggests measures to improve asset quality of banks

Economic downturn, GDP growth declining from close to 9% to below 5%, high interest rates have led to sharp deterioration in asset quality for banking sector

Expressing concerns over the deteriorating asset quality of banks, industry body CII has suggested a 5-point action plan to deal with the rising non- performing assets (NPAs).

The measures, submitted recently to the Finance Ministry and the Reserve Bank, include revamping the corporate debt restructuring (CDR) mechanism; creating a special resolution mechanism for the infrastructure sector; setting up a National Asset Management Company; liberalising norms to raise capitalisation of asset reconstruction companies; and improving the effectiveness of the insolvency regime.

Stressed loans in India, those categorised as bad and restructured, crossed 10% of all loans in mid 2013-14 are expected touch 15% by the end of 2014-15, CII said.

The economic downturn, with GDP growth declining from close to 9% to below 5% over the last few years, accompanied by high interest rates has led to a sharp deterioration in asset quality for the banking sector.

"Owing to their impaired portfolios, the banks are hesitant to extend credit and this affects growth in the corporate sector. Our suggestions are keeping this reality in mind," CII Director General Chandrajit Banerjee said.

The industry chamber also suggested reducing the recovery time in Debt Recovery Tribunal (DRT) through streamlining of procedures so that delays could be minimised and remedial measures taken.

"If the measures outlined above are implemented effectively, the combined impact would release significant stress from the Indian banking system and would yield positive result in making the banking sector in India more robust," CII said.