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The Reserve Bank of India (RBI) has asked banks facing excessive stress due to a rise in bad loans and restructured debt to beef up recovery efforts, failing which lending restrictions could be imposed.
According to the RBI, stressed assets include gross non-performing assets (NPAs) and restructured advances. According to latest finance ministry data, gross NPAs of public-sector banks stood at 5.32 per cent of their gross advances as of the end of September, compared with 4.72 per cent in March. Similarly, restructured loans as a percentage of total gross advances rose to 7.25 per cent from 7.17 per cent during this period.
According to sources, the RBI is mulling action in terms of limiting loan-sanctioning powers of banks with stressed asset ratios near 20 per cent. The regulator communicated its intention to banks during an annual financial inspection.
Kolkata-based United Bank of India (UBI), which reported a loss in the previous quarter, had faced lending restrictions in November last year - it was not allowed to lend more than Rs 10 crore to a single borrower.
A list prepared by the finance ministry to indicate stress level of public-sector banks shows that Central Bank of India has the highest level of stressed assets (20.49 per cent). It is followed by United Bank of India (19.7 per cent), UCO Bank (17.98 per cent), Punjab National Bank (17.94 per cent), and Punjab and Sind bank (17.75 per cent).
If write-offs are added to the figures, the level of stress will further increase.
During a meeting of bankers and finance ministry officials last week, the five most-stressed banks were also present. According to a note circulated by the finance ministry to chief executives of government banks, the average level of stress among public-sector banks was 12.57 per cent. "NPAs rose to 3.84 per cent as of March 2013 and further to 5.32 per cent as of Sept 2014 in respect of public-sector banks," the note said. According to the note, gems & jewellery, coal, and cement sectors had the biggest share of bad loans in the banking system.
"Today, the market does not distinguish much between non-performing loans and restructured ones, preferring to call both stressed loans and discounting bank value accordingly," RBI Governor Raghuram Rajan said in a speech at Gujarat's Anand on Tuesday. The context was ending regulatory forbearance on restructured assets.
While the RBI has proposed to end the leeway banks currently enjoy while recasting debt in terms of lower provisioning vis-à-vis bad loans, bankers have been demanding an extension of the forbearance for a year. The RBI wants all restructured loans to attract provisions in line with sub-standard assets; that is, 15 per cent for secured advances from April 1, 2015, compared with the five per cent applicable for standard restructured advances at present.
