Chakrabarty blames public sector banks for sitting on bad loans-Business Line
Forget banks of future, ‘I am concerned about future of banks’
MUMBAI, NOV. 16:
RBI Deputy Governor K.C. Chakrabarty on Saturday lambasted public sector banks for the rising bad loans, saying they sat on the “menace” far longer than their private sector counterparts.
In a well-researched presentation at Bancon 2013, an annual banking conference, the Deputy Governor also rubbished claims by banks that non-performing assets (NPAs), or bad loans, have been rising because of the economic slowdown.
On the theme of the Bancon 2013 — ‘Banks of the future: Gearing up to meet the emerging environment’ — Chakrabarty said: “As a regulator, I do not have the luxury to talk about the banks of the future; I am more concerned about the future of the banks. One factor affecting the future of the banks is non-performing assets.”
He provided data to establish that NPAs had started rising from 2007, before the financial crisis. He said fresh slippages showed a declining trend from early 2000s, but started rising since 2006-07.
It is not as if the economic slowdown has affected “public sector banks alone”. Private sector banks and even foreign banks have been able to deal with the NPA menace better, Chakrabarty added. The key, according to him, was that these banks identified the problem earlier.
The central banker underscored the importance of regulation in dealing with the NPA problem. “Banks ask for softer regulations (for provisions) when NPAs increase, while data show that when regulations are tightened, asset quality improves.”
Prudential norms (like higher provisioning) are in the interest of the banks, he said, urging lenders to put in place a contingency plan when they lend to infrastructure-based projects such as coal mining and gas-based plants.
When pointed out that public sector banks face excess stress because they have to lend to public enterprises, Chakrabarty said: “For government companies, the project appraisal has to be more stringent. The more powerful the borrower… your appraisal has to be more stringent.”
Responding to the comments, K. R. Kamath, Chairman and Managing Director of state-run Punjab National Bank, said: “We have to learn from the past and utilise the opportunities that are available to us.” Kamath, who is also the Chairman of the Indian Banks’ Association, termed the deputy governor’s speech as “introspective.”
On the point about banks pulling the plug on wilful defaulters, M. Narendra, CMD, Indian Overseas Bank, said banks are slowly moving in that direction.
Loan recast has gone out of control: RBI official
Asset restructuring touches Rs 3.25 lakh crore as of June
MUMBAI, NOV. 16:
Overall asset restructuring in the banking system, which touched Rs 3.25 lakh crore as of June, has gone “out of control”, according to RBI Executive Director B. Mahapatra.
“Till March 2010-11, things were manageable at around Rs 1.10 lakh crore, but now if you see, things are quite out of control. It has gone up to Rs 2.70 lakh crore.
“This is only CDR (corporate debt restructuring), and if you put both (CDR and bilateral restructuring cases between banks and companies) together, it might exceed Rs 3.25 lakh crore,” Mahapatra said, who was chairing a panel discussion at the annual banking conference Bancon 2013 on Saturday.
A bank agrees to restructuring when a loan is under stress, and a default is feared. Under restructuring, banks typically increase the repayment period of loans to stressed borrowers, offer a moratorium and reduce lending rates.
All stakeholders need to tackle the problem jointly, said Mahapatra. “We'll tolerate a bit of restructuring. We will give the regulatory forbearance, offer more time.’’
Hinting that the initiative may come with a rider, the central banker said: “Incentivising is if you go for an early recognition of NPAs (non-performing assets) and early resolution of the problem.”
At present, a loan is considered to be an NPA if its instalment is not paid for three months or 90 days.
“Before 90 days, you know the trend. We are still working on it, nothing is finalised,” Mahapatra added.
On Friday, RBI Governor Raghuram Rajan had said the central bank would announce steps to incentivise early recognition, better resolution and fair recovery of distressed loans. Mahapatra also expressed concern over the falling provision coverage ratio of the banking system, saying it has, on an average, slipped in three years to 45 per cent from over 55 per cent.
Provision coverage ratio is essentially the ratio of provisioning to gross NPA and indicates the extent of funds a bank has kept aside to cover loan losses.
“There's no level per se… Around 50-60 (per cent) is ok (excluding provisions towards standard assets). It depends on the collateral… if the collateral is high quality, you don't need high provisions,” Mahapatra said. Deputy Governor K. C. Chakrabarty said that globally, the provision coverage ratio is 70-80 per cent.
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