Axis Bank managing director and CEO Shikha Sharma on Thursday said the previous week’s ordinance to amend the Banking Regulation Act will be a “great boost” to the resolution of the asset quality problem in the banking system. “It is something that the banks have been requesting for a while. A lot of the RBI regulation has been around accelerated recognition. We ultimately have to solve the stressed loans,” she said.
On May 5, the government had obtained the President’s assent to the Banking Regulation (Amendment) Ordinance, 2017, authorising the Reserve Bank of India (RBI) to direct banks to resolve specific cases of bad loans by initiating insolvency proceedings. On the same day, the RBI had eased the threshold for implementing a corrective action plan (CAP) by joint lenders’ forums (JLFs) to a minimum of 60% of creditors by value and 50% by number, as against 75% by value and 60% by number earlier.
Sharma said the trouble with (JLFs) so far has been banks’ inability to reach consensus decisions relating to the resolution of specific cases of stress. “Between the ordinance by the govt, the empowering that is being done by regulator and the guidelines that the RBI has come up with, it creates a forcing mechanism to take decisions.”
Sharma sought to brush away suggestions that the ordinance amounted to the government and the RBI dictating terms to banks. It should be seen as an enabling mechanism as it will cause decisions to be taken faster, she said.
It also cuts out layers of process involved in implementing a CAP, she added. “What this (ordinance) is doing is that it is cutting off that layer of having to go back to the board (before implementing a decision).
It is forcing a decision mechanism because it is saying that if 60% agree, the rest have to fall in line.” When asked specifically about how this will help Axis bank’s Rs 9,436-crore watch list of potentially stressed assets, she said, “Difficult to predict if our watch list will get upgraded. It depends on how soon we are able to come with solutions and what is the solution.”
According to Capitaline data, the total bad loans of 41 banks stood at Rs 7 lakh crore in the December quarter of FY17, up 60% from the same period last year. In Q2 FY17, gross NPAs of the same set of banks stood at Rs 6.74 lakh crore.