Banks are getting ready to put in place a new system to track the non-performing assets (NPAs) which may affect their profitability in the short term. The new system will keep a watch on bank?s NPAs and it wouldn?t be possible for banks to have any manual intervention while reporting their sticky assets.
While the finance ministry has asked all the government-owned banks to migrate to the new regime by the end of September, the Reserve Bank of India (RBI) has asked banks to shift to the new system by October 31.
Some big banks, including State Bank of India (SBI) and Bank of Baroda (BoB), have already shifted to the new regime. But a large number of other banks are yet to make the shift. Though the banks have already migrated to the new system, when it comes to the smaller accounts, now they have been asked to shift their retail loans, which are huge in numbers.
Moreover, banks are devising various ways to strengthen their NPA monitoring systems to minimise impact of the new system on their profitability.
MD Mallya, CMD, Bank of Baroda, said that the new system makes the banking system more transparent and totally authentic. ?I agree that problems such as impact on profitability may emerge in the short term, but I am of the view that it will happen only once. It will help the banks make their business growth stronger in future,? Mallya said.
Bank of India is likely to shift to the new regime by next month. Ravi Kumar, CFO, Bank of India, said, ?We have almost migrated to the system-driven NPAs in July. It will not be difficult to migrate completely by September.? Commenting on the impact on profitability of his bank, he said, ?Yes, I do agree that our margins will be affected as our slippages are likely to be in the same range which was at the end of the June quarter. Hence, we are looking at increasing our risk management follow ups,? he added.
Union Bank is busy setting up new ?collection centres? on the lines of call centres. The job of these centres, pilot project for which will begin at Bangalore shortly, will be to keep informing the borrowers the due date for the repayment of EMI. SS Mundra, ED, Union Bank of India, said that the bank has already migrated all its accounts to the new system, except small agricultural loans below R5 lakh.
?We are on the job and I am confident that we will be able to do it by next month. It will definitely impact our profitability during the current quarter to a certain extent. To tackle the situation, we are working on opening of special collection centres. The pilot for the project will be kicked off within a couple of months. We are already having a credit monitoring cell at the corporate level for the same.?
R Ramachandran, CMD, Andhra Bank, said the bank has already migrated all its large accounts, valuing R25 lakh and above, to the new system in June. ?Now we are on the job of doing the same for loans below R25 lakh. I am confident that we will be able to do it by September. I agree that our NPAs will go up, which will affect our margins too. Also shifting of comparatively smaller accounts to the new system will be a difficult task. We have formed a separate squad by deploying a good number of people, particularly in the rural areas to strengthen our recovery process,? Ramachandran said.
