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  1. Asset quality woes more of governance issue: Mundra

Asset quality woes more of governance issue: Mundra

Stressed accounts and write-offs in banks’ books rose by as much as 50 basis points in the six-month period ending September 2015 to 14.1% of total loans, Reserve Bank of India deputy governor S S Mundra said on Thursday.

By: | Mumbai | Updated: February 12, 2016 2:27 AM
RBI on household inflation

Stressed accounts and write-offs in banks’ books rose by as much as 50 basis points in the six-month period ending September 2015 to 14.1% of total loans, Reserve Bank of India deputy governor S S Mundra said on Thursday. (Reuters)

Stressed accounts and write-offs in banks’ books rose by as much as 50 basis points in the six-month period ending September 2015 to 14.1% of total loans, Reserve Bank of India deputy governor S S Mundra said on Thursday.

He said that a review by the RBI revealed that banks’ asset quality woes stem from governance issues at banks and not ownership issues. “One thing has come out quite clearly that the issues that we are seeing today, it is not much to do with the ownership of the banks, it is more a governance issue than a ownership issue,” he said at the CII Banking Summit.

According to reports, the RBI has asked banks to classify around re-classify certain accounts and provide adequately for them. This has resulted in all lenders, especially state-owned ones, reporting a significant rise in stressed accounts in their books.

Mundra said that overall stress in the books of public sector banks (gross non-performing assets, restructured accounts and write-offs) as on September 30 had risen to 17% of total loans, as against 16.1% at the end of March. For private sector banks, this number stood at 6.7%, while for foreign banks it was 5.8%.

On the rise in stress being reported by banks in quarterly results, the deputy governor said that it was a question of when the individual bank started identifying the stress on its books. The banks which started doing this early on, have gradually reported the stress, while those who have started the identification process recently will report it later.

“That essentially reflects at what point of time the individual bank has started on this journey. If a bank has started on this journey a little earlier, probably the reflection is there in the result ,” he said.

The rise in stress in banks’ book has sparked speculation about whether or not the RBI will initiate prompt corrective action (PCA) on banks reporting high NPAs. PCA is initiated when a bank’s bad loans exceed 10% of its total assets, its capital adequacy ratio slips below the 9% mark, or if its return on assets falls below 0.25%. If triggered, PCA puts restrictions on a bank’s lending activities.

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