India asking banks to come clean a good move, NPA problem not near crisis levels, S&P Global Chief Economist

By: | Published: July 3, 2018 5:30 PM

Dismissing fears around the rising bad loans at Indian banks, chief economist of a global rating agency said that situation is nowhere near crisis levels as the authorities have successfully identified the problem in time.

Dismissing fears around the rising bad loans at Indian banks, chief economist of a global rating agency said that situation is nowhere near crisis levels as the authorities have successfully identified the problem in time. Furthermore, the efforts made by the government in asking banks to come clean is also a praiseworthy decision, Paul Gruenwald, chief economist of S&P Global Ratings said. This shows why India is ahead of other nations including China in identifying bad assets and dealing with them, Paul Gruenwald told The Times of India in an interview.

Unlike China, where NPA ratio hasn’t moved for years, India’s efforts in making banking system transparent keeps it ahead of the curve, he added.

On being asked about how much obstacle bad loan problem poses to the banking sector, he said that all depends on whether the banks are still able to extend loans or not. If extension of credit is not a problem, then all is moving smoothly, he added.

Meanwhile, with an aim to resolve the problem of stressed assets with public-sector banks, the government came up with a new plan – Sashakt – which includes creation of one or more widely held asset management companies for loans above Rs 500 crore. The government described the latest plan to be a banks-led, five-pronged, comprehensive project that doesn’t involve any regulatory forbearance or an immediate government involvement.

However, the committee headed by PNB non-executive chairman Sunil Mehta didn’t propose a ‘bad bank’. It said in case of large stressed accounts, an alternative investment fund (AIF) would raise funds from institutional investors. There are more than 200 accounts amounting to Rs 3.1 lakh crore with exposure spread across multiple banks.

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