No systemic risks from rising NPAs: Chakrabarty

Even as bad loans hit a record high, growing by a little more than 35 per cent in the first three quarters of FY14 year-on-year, the seniormost Reserve Bank of India (RBI) deputy governor said on Wednesday there were no systemic risks as of now but also called for improving the process of identifying stress on time.

Stating banks had to change their credit appraisal processes and policies, and should also try to come out of the problem soon, Deputy Governor K C Chakrabarty said: "NPAs (non-performing assets) are not a problem now but the process is a problem and we have initiated a lot of processes (to check bad loans). We are very sure that banks have to take quick action about the existing stock of NPAs. They have to take some debt cuts, and they have to do it very quickly. And, if they do not do, then as a regulator, we will make their cost higher."

However, he was quick to add this was his personal view and not that of RBI. The commercial banker-turned-central banker was speaking at an investor summit here.

He said RBI was compelling banks to take suitable action on the bad asset front and at the same time suggesting to them to improve their credit appraisal system. Stating that there is no reason to worry too much about the banking system - considering the large untapped opportunities as only 10 per cent of the 1.24 billion people have access to bank credit - he said lenders have to look beyond serving only "this 10 per cent creamy layer".

On inflation, he said it has peaked and will now moderate going forward "but not because of the effort by the government and RBI, it is beyond their capacity. Inflation has become chronic but anyways we cannot have 10 per cent inflation and five per cent growth indefinitely".

"Inflation has peaked. It is starting to come down and my own assessment is that it will start going down and may be in one-and-a-half-year down the line it will reach the target of 5.5-6 per cent," he said.

Headline inflation eased to an eight-month low of 5.05 per cent in January. He said part of the problem with persistently high inflation is that "we have not been able to define inflation properly. Now at least that wisdom has come into the RBI in regard to inflation target".