Stress tests show banks have poor credit quality, says RBI-Business Line
Mumbai, Nov. 21:
The pressure on the loan quality of banks remains a major challenge in the short term, cautioned the Reserve Bank of India.
The RBI said macro stress tests indicate that if current macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further.
To minimise the problems of rising bad loans, the RBI wants banks to strengthen their due diligence, credit appraisal, and post-sanction loan monitoring
In its report on trend and progress of banking in India for 2012-13, released on Thursday, the RBI observed that the banking system’s loan quality, primarily in the industrial and infrastructure sectors, deteriorated significantly during the year and there was an increase in the total stressed assets.
NPA and Slowdown
The banking system’s total stressed assets (bad loans plus restructured standard loans) rose to 9.2 per cent of total advances as on March-end 2013 against 7.6 per cent as on March-end 2012.
While the primary driver of deteriorating loan quality was the domestic economic slowdown, other factors, such as delays in obtaining statutory and other approvals as well as lax credit appraisal/ monitoring by banks, was also significant.
Further, higher credit concentration in certain sectors and higher leverage among corporates also increased the stress on loan quality.
The report cautioned that: “In recent years there has also been a sharp increase in the amount of debt restructured under the corporate debt restructuring mechanism.
“This has implications for the banks’ already stressed loan quality in the period ahead.”
Flagging concerns on the bad loans front, RBI Deputy Governor K.C. Chakrabarty in a presentation last week, pointed out that in the last six years, new accretion to bad loans (at Rs 4,94,836 crore) has exceeded reduction (at Rs 3,50,332 crore) in bad loans.
The RBI said there is a need to improve the effectiveness of the recovery system. In this regard, there is an urgent need for accelerating the working of Debt Recovery Tribunals and Asset Reconstruction Companies.
Sarfaesi Act most effective tool to recover bad loans: Report
MUMBAI, NOV. 22:
Amidst rising non-performing loans, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) was the most potent tool in the hands of banks for recovering bad loans.
The Sarfaesi Act empowers banks and financial institutions to recover their non-performing assets without the intervention of courts.
The Act provides three alternative methods for recovery of non-performing assets — securitisation, asset reconstruction and enforcement of security — without the intervention of courts.
According to the RBI’s Report on Trend and Progress of Banking in India, 2012-13, banks have recovered Rs 18,500 crore through the Sarfaesi route. Also, in terms of efficiency, the Act has proved to be more effective than the debt recovery tribunals (DRTs) or mediation by Lok Adalats.
Pratip Chaudhuri, former SBI Chairman, in an interview to Business Line in September had said that stay orders by DRTs led to delay in recoveries.
“Under the Sarfaesi Act, notice is served and two-months’ time is given to the borrower to discharge his liabilities, but Debt Recovery Tribunals (despite clear instructions from the Supreme Court that they cannot give stay orders on Sarfaesi) are still giving stay orders. And not one (order) has been justified.
“Eventually, the stay order is lifted but in the process one to one-and-a-half years is lost, without any benefit to anybody,” he had said.
Also, the rising levels of stress across the banking system was reflected in the fact that the number of cases under all the three mechanisms saw a massive increase of 66 per cent to 10.45 lakh cases.
No comments:
Post a Comment