Rajan says will not let system fail,but clean-up must continue

Amid mounting bad loan worries at public sector lenders, RBI Governor Raghuram Rajan today said there is no question of going back on the clean-up drive even as he assured full support to all banks including those with problems on their balance sheets.
Rajan, who has set a deadline of March 2017 for the banks to clean up their balance sheets resulting into huge losses being booked by many lenders and sharp profit plunges by others, also asserted that the government and the regulator would not let the system fail.
He also hoped that the banks with weak balance-sheet would also be able to withstand the turmoil.

"Not all our banks are in trouble. There are very strong banks in the system. The banks that have some balance sheet issues have the potential to resolve them. The government is behind them, the Reserve Bank is behind them," Rajan said while delivering the 14th KP Hormis commemorative lecture on 'Financial sector reforms: The past and the future' here this evening organised by Federal Bank.
Late Hormis was the founder of Federal Bank, which is the largest private sector lender in Kerala.
Stating that there was no going back on the clean-up drive, Rajan said, "This is a problem (of NPAs), we will fix without any trouble. I don't doubt that at the end of this process, the franchise value of these banks will come to the fore in a full-fledged manner and that they will be strong and healthy soon."

Rajan's comments came on a day when public sector lender Bank of Baroda reported a massive Rs 3,342 crore loss for the third quarter -- the biggest ever quarterly loss for any lender in the country. Earlier yesterday, IDBI Bank had reported a net loss of Rs 2,183.7 crore. Many of these banks have disclosed NPAs close to 9 per cent.

Earlier this week, the country's largest lender SBI reported a massive 67 per cent plunge in its net profit and warned of an equally bad quarter or two.
Many mid-sized public sector lenders like Oriental Bank of Commerce, Central Bank of India, Allahabad Bank and Dena Bank have also reported deep losses while large ones like Union Bank and PNB have reported massive drop in profits.

Even private sector banks like ICICI and Axis Bank have also reported higher NPAs and lower profits this quarter following the RBI diktat on asset quality review.
The impact of these poor numbers on their stocks has been such that most of the state-run banks are trading below their book value and their combined NPAs are more than double their market capitalisation.
Almost all banks have been reporting large bad loans and the resultant losses/decline in profit following an RBI directive which asked them to make provisions for as many as 150 top troubled accounts.
The system as a whole has over Rs 8 trillion bad loans which is more than 11 per cent of the system as of the September quarter.