Balance sheet clean-up to allow banks focus on loan growth: RBI Guv Raghuram Rajan

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Published: February 3, 2016 1:10:36 AM

The Reserve Bank of India's (RBI) intention behind the balance sheet clean-up drive by March 2017 is to allow banks focus on loan growth without the fear of tackling legacy accounts, governor Raghuram Rajan said on Tuesday.

The Reserve Bank of India’s (RBI) intention behind the balance sheet clean-up drive by March 2017 is to allow banks focus on loan growth without the fear of tackling legacy accounts, governor Raghuram Rajan said on Tuesday.

“I think a number of banks have welcomed their ability to clean up their balance sheets knowing that others are doing it also and they will not be seen in isolation,” he said adding that it would not deter profitability in the medium term. RBI data showed NPA for the banking system had risen to 5.1% of total assets in September 2015 from 4.6% in March.

He said that the RBI has not told banks what to do but has discussed with them a range of accounts and essentially given them sometime to figure out how those accounts can be regularised or moved into different categories.

“It is now in the bank’s court to move forward on this. Our only role to make sure this process is uniform across banks and ensure that over a period of time, banks’ balance sheets are both fully provisioned as well as the assets that could go bad are recognised as such and classified as such,” Rajan said.

The central bank also said that it will soon tweak the joint lenders forum (JLF) and strategic debt restructuring (SDR) guidelines and the governor said that these norms will ‘fine-tuned’.

Rajan said that calculations by some agencies which put stressed assets at 17-20% of total assets, may be a little on the high side. “Broadly speaking, we should be careful about treating of any stressed asset as a total write-off as some of these assets need changes in terms or conditions and sometimes promoters and as the economy recovered it may be paid in fair amount of value,” he explained.

The RBI, Rajan said, wanted to give banks more powers before beginning the clean-up exercise as there was no point pushing to clean-up when powers were limited. “We have been giving powers to banks and now the time has come for full recognition,” he said.

In December, Rajan had said that the central bank would want to put something like March 2017 on the table by when banks have to clean-up their balance sheet.

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