Govt, banks meet today on stressed assets

Just five sectors contribute 61% of the banking sector's stressed assets - infra, steel, textiles, power, and telecom

Bureacrats and bankers will meet in Delhi on Monday to review stressed assets (accounts), especially in the steel and infrastructure sectors.

Public-sector bank executives said, this would be an overall review. The government wants to know if changes in rules are required. According to Reserve Bank of India data, five sectors contribute 61 per cent of the banking sector’s stressed assets — infra, steel, textiles, power and telecom. Each is individually important and dealing with stressed assets will require skill and creativity.

There are many reasons that led to this situation but helping banks deal with this is, at present, of utmost importance, RBI governor Urjit Patel said early this month, at the monetary policy review.

Bankers said it had been a little over a year since the steel industry got support through steps like a higher duty on import. Banks have also done considerable hand-holding, indicating patience despite a high provision burden for stressed cases. Some improvement is now visible in demand and prices of steel products. Most units in the steel sector are working with better capacity and are positive on operating earnings. If this trend continues, units will be in better position to service debt, said a senior with IDBI Bank.

Still, significant financial stress in large expansion projects, especially in iron & steel, construction, textiles and power, continues to inhibit bank credit flow. Credit to industry shrunk by 0.2 per cent in the 12 months to August, from five per cent growth in the earlier 12 months. In this period, loans to infrastructure (power, telecom, roads) fell 4.2 per cent, as against the earlier growth of eight per cent.

After the change of guard at RBI, there is also a change in the approach on non-performing assets. Patel, while articulating the priorities, had said, “RBI will deal with this situation (NPAs) with firmness but also with pragmatism, so that the economy does not feel any lack of credit to support growth in the economy. We must remember the situation has not occurred overnight and will require skill and thoughtful endeavour to resolve.”

There are four stages. The identification, the recording and reporting of this subject have been done satisfactorily. Resolution is the fourth leg and needing a lot more work, he’d added.