The Reserve Bank of India (RBI) will take a “pragmatic” approach to resolving the problem of bad loans so as to ensure credit is not choked off, governor Urjit Patel said on Tuesday. Patel added that the central bank was working with the government and banks on the matter.
“The NPA (non-performing asset) situation is an important issue for the RBI and India. We will deal with the situation with firmness but also with pragmatism so that the economy does not feel any lack of credit to support growth,” he said. He added that as the situation did not come about overnight, it needed skill and thoughtful endeavour to resolve.
According to Patel, while the first three stages of dealing with NPAs — identification, recording and reporting — had been done “satisfactorily”, banks need to work on resolution of the identified assets.
Patel said that since 2007-08, the banking sector has been lending to support investments in infrastructure. “Just five sectors contribute 61% of the stressed assets of the banking sector — infrastructure, steel, textile, power and telecom,” he explained, adding that these sectors are important and, therefore, dealing with stressed assets will require “skills and creativity”.
The central bank has been trying to help banks tackle bad loans by allowing them to convert debt into equity and more recently into convertible redeemable preference shares. However, banks have not been able to find buyers for any of the assets under strategic debt restructuring scheme. In Q1FY17, banks reported gross bad loans of Rs 6.5 lakh crore, up from Rs 5.9 lakh crore in FY16. Non-food credit for the fortnight ended September 16 stood at Rs 72.13 lakh crore, up 9.6% year-on-year.
Former RBI governor Raghuram Rajan had taken a tough approach to the “’clean up” of banks’ balance sheets, saying they required “deep surgery”. Rajan emphasised the need to classify assets correctly, recognising their true value. The classification of loans as NPAs, he had said, is an anaesthetic that allows the bank to perform extensive necessary surgery to put a project back on its feet.
Meanwhile, the RBI said it is looking to release a revised set of guidelines on the scheme for sustainable structuring of stressed assets (S4A). Following representation from lenders regarding asset classification norms under S4A, the central bank has decided to allow the sustainable portion of the debt, irrespective of how it was classified before the recast, as standard.
FE had earlier reported that bank loans that aren’t NPAs just yet but could turn toxic amount to over Rs 6 lakh crore or close to 9% of total advances, citing RBI data. The total troubled loans of Rs 6,24,119 crore at the end of December 2015 were 9% higher than the Rs 5, 73,381 crore at the end of June 2015.