1. Bad loans: With freer hand, RBI and banks brainstorm on NPAs

Bad loans: With freer hand, RBI and banks brainstorm on NPAs

Reserve Bank of India (RBI) deputy governors Viral Acharya and NS Vishwanathan on Tuesday met bank chiefs to discuss the top 50 stressed accounts.

By: | Updated: May 31, 2017 3:25 PM
Bad loans, RBI on NPAs, NPA, Loans in India, Viral Acharya, NS Vishwanathan, non-performing assets, Kotak Mahindra Bank, Chanda Kochhar, ICICI Bank, Shikha Sharma, Axis Bank, Aditya Puri, ARCs Discuss top 50 stressed accounts; BR Act amended in May to give RBI more powers. (Image: PTI)

With the government and the central bank both focused on resolving the problem of bad loans on banks’ books, Reserve Bank of India (RBI) deputy governors Viral Acharya and NS Vishwanathan on Tuesday met bank chiefs to discuss the top 50 stressed accounts. In early May, the President had approved an ordinance amending the Banking Regulation (BR) Act, 1949, giving more powers to the RBI to deal with non-performing assets (NPAs). Earlier, the Union Cabinet had approved a proposal to amend Section 35 of the BR Act.

Subsequently, the central bank has been meeting stakeholders to deliberate on the way forward. Tuesday’s meeting was attended by the heads of nearly 10 banks. Among those present were Uday Kotak, executive vice-chairman, Kotak Mahindra Bank, Chanda Kochhar, CEO and MD, ICICI Bank, Shikha Sharma, CEO and MD, Axis Bank, Aditya Puri, MD, HDFC Bank, Zarin Daruwala, CEO and MD, Standard Chartered Bank and B Sriram, Managing Director, ,State Bank of India (SBI).

Last week, the central bank had said “the proper exercise of the enhanced empowerment would require coordination with and cooperation from several stakeholders including banks, ARCs, rating agencies, IBBI and PE firms, to which end the Reserve Bank of India would be holding meetings in the near future with these stakeholders”. Since then, it has met asset reconstruction companies (ARCs) and credit rating agencies.

Among the accounts discussed was Videocon Industries, an exposure that was recently declared an NPA by public sector lender Dena Bank. According to senior bankers, the RBI is looking into the exposure owing to a lack of congruity in classification among bankers.

While a couple of smaller banks have classified the account as an NPA in Q4 FY17, larger banks like SBI and Punjab National Bank are yet to do so, sources said. However, sources added that Videocon has not paid interest even in April and has, therefore, been classified as a bad loan by a majority of banks.

Other top stressed accounts that the central bank is understood to be looking into include those of the Essar Group, Jindal Group, Jaypee Group, Bhushan Steel and Monnet Ispat. The central bank has said it plans to expand the strength and scope of the oversight committees (OC). Currently, there is just one OC that comprises just two members and vets only S4A (scheme for sustainable structuring of stressed assets) proposals. The expanded OC will also vet other debt recast mechanisms.

Meanwhile, rating agency S&P on Tuesday said that credit profiles of Indian banks were unlikely to improve over the next 12 months. In a report titled “No Quick Cure For India’s Banking Blues”, the agency estimated that the banking sector’s total stressed assets will increase to 13-15% of total loans by the end of March 2018.

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The extent of the NPA problem can be gauged from the fact that around Rs 10 lakh crore of loans are either non-performing or stressed; this is roughly 12% of total loans. McKinsey believes current levels of provisioning are inadequate; it reckons there is a shortfall of nearly Rs 6 lakh crore. Other analysts have estimated a gap of Rs 3-4 lakh crore but cautioned slippages may exceed current expectations.

For a group of 21 public sector banks, profits in 2016-17 totalled just Rs 474 crore compared with Rs 40,123 crore earned by 16 private sector banks. FE had reported that the cumulative provisions on account of ageing for just four banks — SBI, Punjab National Bank, Axis Bank and ICICI Bank — were an estimated Rs 80,000 crore at the end of March.

Analysts expect the provisions for the sector could be more than twice this quantum given the asset quality at some banks is quite poor. According to Capitaline data, the total bad loans of 37 banks stood at Rs 7.1 lakh crore in FY17, up 25% from last year.

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