RBI, bank heads discuss cleansing of lender books

Review asset quality situation

After setting a target to cleanse bank balance sheets by March 2017, Reserve Bank of India Governor Raghuram Rajan met chief executives of select lenders, private and government-owned, on Monday in this regard.

Union Bank of India Chairman and Managing Director Arun Tiwari told reporters after the meeting that beside the stressed assets situation, economic conditions in general were discussed with the RBI brass. No specific stressed account came up in the interaction, he said, not elaborating on the steps the bankers discussed with RBI on tackling non-performing loans.

RBI said various issues came up, including the asset quality of banks and the way forward on improving the quality of balance sheets. The discussions will continue, it added.

Rajan had, in a post monetary policy media interaction on December 1, said stressed assets (non-performing assets plus restructured assets) were an important part of a bank’s balance sheet. Banks would, he said, be able to rectify that not only by making provisions in the accounts but also by putting some of these assets back on track.

Rating agency ICRA had in its review of the September quarter results of banks said the pace of stressed asset formation moderated from around 5.6 per cent in FY15 to 3.3 per cent in the first half of this financial year. As a result of this moderation in the pace, the consistent increase in the stock of stressed advances over recent years had been arrested in April-September. The level of stressed advances remained largely unchanged at 10.7 per cent of the total as of end-September versus 10.6 per cent as of end-March, it said.

With many initiatives like the ‘5/25’ scheme and Strategic Debt Restructuring in place to tackle stressed assets, Rajan expects banks to complete the task of cleaning up the balance sheet by March 2017.  The 5/25 scheme is aimed at companies in the infrastructure and core sectors to tide over bad times, with repayment spread over a longer period.

Bankers have said the governor’s goal is reasonable. While systems continue to show signs of stress, the effect of the past few years to closely monitor credit quality, early recognition and early resolution would begin to show results. Also, recovery in the economy would “lift some boats”, some stressed units will begin to perform and resume payments. However, banks will still have to battle with the tardy pace of stress resolution in legal forums.

‘Stressed’ assets
RBI Governor Raghuram Rajan (pictured) had on December 1 said stressed assets (non-performing assets plus restructured assets) were an important part of a bank’s balance sheet. Banks would, he said, be able to rectify that not only by making provisions in the accounts but also by putting some of these assets back on track