RBI governor concerned over size of non-performing loans

Reserve Bank of India (RBI) Governor Raghuram Rajan Thursday said that the size of the non-performing loans (NPL) in the banking sector was a matter of concern, but ruled out the possibility of the issue leading to a financial crisis.

Rajan, who was addressing a press conference after a meeting of the RBI's central board in a coastal resort 50 kms from Panaji, also said that the bad loans scenario may have not have peaked in India's banking sector. He also noted that while some banks had managed to turn around the bad loan positions, others weren't doing enough.

"If you ask, am I worried from the perspective of, are we in danger of a financial crisis, the answer is no. Am I concerned about the losses that it implies and the effects on bank functioning, on the losses to the tax payer, yes, I am concerned about the size of the NPLs," Rajan said to a media query seeking his reponse to the NPL issue.

Rajan also said that the RBI was in touch with the banks to identify the problems and trying to bring down the NPL at the earliest.

"The history of NPLs in the past in the banking sector has been a combination of actions by the banks as well as growth tends to restore bank's health... A slow recovery is underway, so I think that will help, but we are doing everything we can on the regulatory side to make sure that these bad assets are recognised, problems are dealt with and we move forward," he said.

Asked if the country's banking system had seen the worst of the situation yet, Rajan said such a point had not been crossed.

"I would not be prepared to make that statement today only because you see a variety across banks. Some banks have managed to start bringing down their bad loan positions, in others, it is still increasing. I think I would feel more confident when there is a more uniform series of results across the banks. But that is not to say we haven't crossed that point," Rajan said.