Bank results indicating asset quality stability: RBI

Only way to get over the issue of mounting bad loans is to adopt correct business practices and risk management strategies, said S S Mundra

Reserve Bank Deputy Governor S S Mundra today said initial trends from banks' first quarter results indicate some stability on asset quality.

He said the only way to get over the issue of mounting bad loans is to adopt correct business practices and risk management strategies.

"We are seeing that there is some stability now in the NPA levels. So we will have to keep a constant watch on how things are developing," Mundra told reporters on the sidelines of an event here.

He further said it is still early to make a definitive statement regarding this, as only a few banks have reported their Q1 numbers. Major banks which are yet to report the results include the SBI and ICICI.

It can be noted that the sluggishness in the economy, coupled with regulatory and judicial actions, has resulted in increased instances of loan losses for banks, with sectors like power, shipping, iron and steel, aviation and infrastructure being badly affected.

Yesterday, three large state-run banks reported massive dip in their bottomlines driven down by higher provisions for dud assets.

All these banks have seen their bad loan ratios climbing though there has been dip in fresh slippages in the three months to June period.

Among the five banks that have so far declared June quarter earnings, the state bank of Travancore has shown allround improvements in both bottomlines and toplines.

The RBI has been repeatedly flagging issues on asset quality stress and has been asking banks to be forthcoming in identifying the stress.

Apart from creating a new system of joint lenders forum to resolve stressed assets where multiple lenders are involved, the RBI has also discontinued the old system of asset restructuring and asked banks to classify any bad loan as an NPA at the earliest sign of stress.

"We have yet to see more banks come out with their results. So it's a little early to make a definitive statement. We are seeing that there is some stability now in the (NPA)levels. So we will have to keep a constant watch on how things are developing.

"The only thing which can reduce NPAs is the way business is done..Nothing else can. Any other method would not be right also. It has to be done by right business practices and right risk management," Mundra said.