The Reserve Bank of India (RBI) has decided to stick to its deadline of March 2017 to clean up balance sheets of banks, deputy governor NS Vishwanathan said on Tuesday. This was despite governor Urjit Patel speaking of a ‘pragmatic approach’ in dealing with NPA resolution.
“It ( March 2017 deadline to clean up of banks’ balance sheet) stands,” Vishwanathan told reporters on the sidelines of an Assocham conference here.
In October, Patel had said the RBI would be firm but pragmatic in dealing with bank NPAs so that the economy does not face lack of credit to support growth.
Former RBI governor Raghuram Rajan had taken a tough approach to clean up banks’ balance sheets, saying they required ‘deep surgery’. Rajan had 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.
Vishwanathan also said bad loans in the infrastructure sector is close to 16-17% of total advances. He added that the structuring of infrastructure financing has to be very correct as their projects have long gestation. “These are long-gestation project that need to have a proper mix of equity and loan funding.”
The time line for completion of project needs to assessed realistically upfront so that the date of commencement of commercial operations (DCCO) is not ‘artificially’ fixed without taking into consideration the normal time taken for executing such projects, Vishwanathan said.
He said incremental stress in the banking system is coming down. In August, RBI deputy governor SS Mundra had said the level of stressed loans in banking sector had risen to 12% as gross non-performing assets nearly doubled to 8.7% in the June quarter.
Stressed advances – GNPAs and restructured standard advances – stood at 11.4% in March 2016. It was at 10.9% in March 2015.