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  1. No financial crisis risk, but bad loans still a problem: Raghuram Rajan

No financial crisis risk, but bad loans still a problem: Raghuram Rajan

Raising concern over rising bad loans at some banks, RBI Governor Raghuram Rajan today said there was no danger of any financial crisis.

By: | Benaulim | Published: May 14, 2015 9:18 PM
Raghuram Rajan RBI

BI Governor Raghuram Rajan today said there was no danger of any financial crisis but it may be early to declare that the worst was over on the NPA front. (PTI)

Raising concern over rising bad loans at some banks, RBI Governor Raghuram Rajan today said there was no danger of any financial crisis but it may be early to declare that the worst was over on the NPA front.

“I would not be prepared to make that statement today only because you see a variety of problems across banks. Some banks have managed to bring down their bad loan positions, for others it is still increasing,” Rajan said.

He was replying to a query on whether the worst was over with regard to Non-Performing Assets (NPAs) in the banking system.

“I would be more confident when there will be a uniform sort of series of results across the banks,” Rajan told reporters after a central board meeting of the RBI here.

He, however, sought to undermine the concerns, saying, “if the question is whether are we in the danger of a financial crisis? The answer is no!”

He further said that he is more worried about the losses to taxpayers and the effects on banks’ functioning due to their rising bad loan levels.

The Governor said resolution of NPAs will be possible only with higher economic growth, which he termed as “slow” and the actions which the banks take.

“Combination of action by banks as well as growth tend to restore bank health. A slow recovery is underway, I think it will help,” Rajan said.

It can be noted that bad loans are on the rise and none of the banks in FY14 have reported any major improvement on the asset quality side.

A recent International Monetary Fund report said the domestic banking sector was in trouble with a whopping 36.9 per cent of the country’s total debt being at risk, which is among the highest in emerging economies.

The stressed assets ratio, which includes NPAs and restructured loans, of public sector banks has risen by an alarming 131 bps to 13.2 per cent or over Rs 7,12,000 crore, in FY15 with their gross non-performing assets touching 5.17 per cent. This is nearly 230 bps more than that of the system, according to the RBI data.

This means that more than 8 per cent of the advances were restructured in FY15. Stressed assets were 11.02 per cent in FY13 and 11.89 per cent in FY14.

As of March 2015, while gross NPAs rose to 4.45 per cent for the system as a whole, net NPAs also climbed up to 2.36 per cent, shows the RBI data.

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