Operating profits of banks show improvement: RBI

Provisions for stressed loans adequate, says Mundra; monitoring to continue

Going by preliminary analysis of the performance of listed banks in the December quarter, their asset quality situation seems on the mend, according to the Reserve Bank of India (RBI).

There is some elevation in the gross non-performing assets (NPAs) ratio in the banking system. However, for the first time in some quarters, the ratio has come down in some from the preceeding quarter, said RBI deputy governor S S Mundra.

Addressing journalists after the monetary policy review, he said similarly in respect of net NPAs, consistent with gross NPAs, while there would be an elevation in a large number of banks, the ratio had come down. Which shows the level of provisioning is adequate.

Also, there were cases of restructured assets falling into the NPA category. As a result, across the system, there has been a reduction in the percentage of restructured assets.

Overall, the system has shown improvement in operating profit but on the back of higher provisioning, some of the pressures on net profit would continue. The level of stressed assets in the sector is a little above 20 per cent, putting together gross NPAs and restructured assets. That is a concern.

RBI has been focused on this for some time. The continuous provisioning has, to some extent, equipped banks to deal with those accounts.

While it is good that weakness have been recognised and provisions have been built, the key would be their resolution. In the past 18 months, RBI has given tools such as Strategic Debt Restructuring and the ‘5/25’ scheme. Under each of these, quite a few cases have been taken up.

The other development in this is the new bankruptcy code. It is very important that it becomes operational soon. Combined use of these case-specific tools is something RBI will continue to monitor, Mundra said.